Estimating Structural Models of Equilibrium and Cognitive Hierarchy Thinking in the Field: The Case of Withheld Movie Critic Reviews

Film studios occasionally withhold movies from critics before their release. Since the unreviewed movies tend to be below average in quality, this practice provides a useful setting in which to test models of limited strategic thinking: Do moviegoers seem to realize that no review is a sign of low quality? A companion paper showed that in a set of all widely released movies 2000–09, cold opening produces a significant 20–30% increase in domestic box office revenue, which is consistent with moviegoers overestimating quality of unreviewed movies (perhaps due to limited strategic thinking). This paper reviews those findings and provides two models to analyze this data, an equilibrium model and a behavioral cognitive hierarchy (CH) model that allows for differing levels of strategic thinking between moviegoers and movie studios. The behavioral model fits the data better, as moviegoer parameters are relatively close to those observed in experimental subjects. These results suggests that limited strategic thinking may be a better explanation for naı̈ve moviegoer behavior than equilibrium reasoning is. ∗Thanks to audiences at Caltech, Chicago GSB, Berkeley, Yale Graduate Student Conference on Behavioral Science, 2007 North American ESA, SJDM, SEA, 2010 AEA meetings and the 8th Triennial Invitational Miami Choice Symposium, especially Stefano Della Vigna, David Grether, Stuart McDonald, Tom Palfrey, Charles Plott, Robert Sherman, and Leeat Yariv. Thanks to Esther Hwang, Carmina Clarke, Ferdinand Dubin, Zachary Bethune, Cheng Cheng, Xinrong Li and Jonathan Garrity for help with data collection. Thanks to Matt Shum and the Bush School Empirical Workshop, especially Stephanie Houghton, Steve Puller and Lori Taylor, for help during revision. This paper has benefitted from the very helpful comments of the editor and three referees. †Corresponding author. Please contact at [email protected].