Quizonomics

The first six months of my stay in Germany were, for better or for worse, without much television. That has changed since I’ve moved to Schwerin, and in the nearly two months I’ve been here the German show I’ve watched most regularly has been Quiz Taxi, where passengers can answer trivia questions for cash as they travel to their respective destinations:

The show is appealing for me because it is straightforward, relatively easy to follow, offers a good way to improve my German, and simply because I like trivia. But what’s interested me as I’ve become a regular viewer is how passengers handle the “Master Question,” which is only offered to those who have won the game by reaching their destination without missing too many questions. With the Master Question, passengers are offered the chance to double the money they’ve won by answering correctly one question of medium difficulty. If they cannot answer correctly the question, however, they lose all their winnings.

Germans, fitting the European mold, are stereotypically risk-averse (in finance and in life), so my expectation was that very few players would choose to play the Master Question since they would conclude that it’d be better off to pocket the money they’ve already won—which usually ranges from 500-1,000 €—rather than risking it even for a possible 100 percent return. To my surprise, however, I’d estimate that about 1 in 3 of those who are offered the chance to play the Master Question do so.

Unfortunately, too many of those who do choose to play seem to do so on an irrational basis, for all too often a passenger will accept the challenge to play the Master Question with some remark along the lines of “Well, even if I lose, I wouldn’t be any poorer than before I started playing.” Upon hearing this, the little homo economicus on my shoulder never fails to start a-wailing, because he understands that the player is failing to consider forgone money as a cost. A player, for example, who has won 500 € in the normal game but incorrectly answers the Master Question will disembark 500 € poorer—in other words, the trip has cost her 500 €. This would be no different than if she had simply handed over 500 € without even playing, it’s just that this explicit cost is easier to see than the implicit cost: in the case of the former, the player’s bank account goes down by 500 €, in the case of the latter the bank account fails to go up by 500 €—either way, the cost is still there. It thus makes no sense whatsoever for a player to opt for the Master Question under the justification that “I wouldn’t be any poorer than before.”

This implicit cost that is unrecognized by so many hapless Quiz Taxi passengers has long been known to economists as opportunity cost, and it is a core concept in economic thinking. Once one has internalized this deceptively simple idea, no decision will ever be viewed the same way.

In the interest of helping readers discover their own little homo economicus, my next post will contain another example of "opportunity cost accounting" (Copyright © 2008 Jeffco Enterprises, Inc.) in action.