Handbook of Behavioral Industrial Organization
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Handbook of Behavioral Industrial Organization

Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.
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Chapter 11: One-armed bandits and behavioral economics

Jason P. Berkowitz, Craig A. Depken II and John M. Gandar


We analyze the slot machine market of South Florida to test for standard price competition. Standard Bertrand competition suggests that average price and price dispersion should both decline over time. Although casinos are differentiated by location and other amenities, if consumers demand higher jackpots over time, average prices are expected to decline. In the absence of bounded rationality or other consumer biases we would expect price dispersion to decrease as well. The empirical evidence suggests that price dispersion is increasing over time in this slot machine market contrary to standard price competition.

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