William Poundstone's Blog

Pity the summer tourist in New York, the city where everything is more expensive than it is back home. Last month, Serendipity 3, an East Side eatery popular with visitors, introduced a $69 hot dog. Call that a leading indicator: Several Manhattan restaurants introduced $100+ hamburgers prior to the 2008 meltdown, but not many have since — maybe lest the masses storm the place with pitchforks. Like the hamburgers, Serendipity 3's "Foot-Long Haute Dog" attempts to justify the price with the ga...

At the moment — but probably not for long — the biggest secret of TV is how much money CBS had to pay Charlie Sheen to continue his hit sitcom, Two and a Half Men. Sheen was reportedly making just under $1 million an episode when his contract expired last month. He hinted he was ready to call it quits. That would have been very bad news for CBS, which draws 15 million viewers an episode. It’s been claimed that the actor was asking for $2 million an episode, and that the talk of quitting was just a bluff.
How much is a sitcom star worth? Answer: Nobody has a clue. It's one thing to compute the revenue stream from Two and a Half Men. It's another to apportion that between Sheen, his co-stars Jon Cryer and Angus T. Jones, the other actors, the writers, and directors. How do you discount for Sheen's much-publicized personal demons and the uncertainties they raise?
One thing's for sure: CBS doesn’t want a repeat of the Seinfeld fiasco. In 1997 Jerry Seinfeld announced he was quitting his hit sitcom, Seinfeld, whose importance to NBC then was much like Two and Half Men’s importance to CBS now. Unlike Sheen, Seinfeld meant it. He was quitting… walking out the door. Really.
Seinfeld was then making $1 million an episode, an unheard-of sum. NBC dangled an offer of $5 million an episode, to do one more season.
Seinfeld said no. Inevitably, word of the NBC offer leaked out. The network brass must have hoped that everyone would appreciate that Seinfeld was a special case and that the $5 million offer did not set a precedent.
Actors thought otherwise. Over the next few years, star — and sidekick — salary demands escalated as never before. In 2002, the leads of Friends collectively bargained their way to $1 million per episode, per “friend.” Ray Romano was making $800,000 an episode for Everybody Loves Raymond, and Frasier’s Kelsey Grammer was the leader with $1.6 million an episode.
NBC’s failed bid to make Seinfeld stay ended up being hugely expensive for all the networks, broadcast and cable. You may ask how that can be. Sitcom salaries are a classic example of what economists call “coherent arbitrariness.” No one knows exactly what a TV star is worth. Given that uncertainty, people are influenced by any salient numbers that are out there. The mere knowledge that NBC had offered (not paid!) $5 million an episode caused everyone to raise their estimates of what TV actors are worth.
This is the "arbitrary" part. Estimates of actor salaries are also coherent, in that everyone appreciates that a star should make than a supporting player; a hit show's actors should make more than those in a dud. Indeed, James Gandolfini once shut down The Sopranos after he found out he was only making as much money as the housekeeper on Frasier.
In an April statement, Charlie Sheen said, “All of the numbers reported in the press are false. Claims from ‘inside sources’ regarding offers from the studio as well as my salary, on their best day, are without merit.” True or not, Sheen’s new salary can't stay secret for long. When it leaks out, it’s likely to generate another wave of aggressive demands by actors — at all levels of the TV food chain.

At the moment — but probably not for long — the biggest secret of TV is how much money CBS had to pay Charlie Sheen to continue his hit sitcom, Two and a Half Men. Sheen was reportedly making just under $1 million an episode when his contract expired last month. He hinted he was ready to call it quits. That would have been very bad news for CBS, which draws 15 million viewers an episode. It's been claimed that the actor was asking for $2 million an episode, and that the talk of quitting was j...

I've got an article, "How Much Will You Pay?" in the June Playboy (yes, the issue with the 3D centerfold).

Every marketer has to decide how much product to sell and at what price. Few are as fortunate as condom makers, whose customers are glad to pay a premium for a product that isn't much bigger or better. Consider the Magnum line of plus-size condoms, a sub-brand of industry leader Trojan. Magnum's share of the market has surged (if you'll excuse the expression) from 4.6 percent of the market in 2001 to 18.8 percent today. The size of the American male has not seen a similar increase.
"Bigger tha...

Every marketer has to decide how much product to sell and at what price. Few are as fortunate as condom makers, whose customers are glad to pay a premium for a product that isn't much bigger or better. Consider the Magnum line of plus-size condoms, a sub-brand of industry leader Trojan. "Bigger than most condoms, it is designed to fit those that find normal condoms too constricting," reads one website's copy, which closes on the tantalizing note: "These are a little smaller in Width and lengt...

The iPad's release has renewed the question, what should an eBook cost? Answers range from "free" to "whatever the market will bear." Psychologists would say the operative word is "whatever." At issue is the phenomenon of "anchoring," discovered by Amos Tversky and Daniel Kahneman. When people don't know what a fundamentally new product should cost, they are strongly influenced by the first price they encounter. It's like the way a baby chick decides that whatever creature it sees first is it...

Richard Thaler has an article in today's New York Times on mispricing of NFL talent. In the NFL draft, losing teams trade away too much for "first pick" players, Thaler and Cade Massey argue in a recently updated paper.

"We found that the teams choosing early in the draft generally don’t, in fact, get the players that provide the most value per dollar. Our paper is titled “The Loser’s Curse” because we discovered that the first pick in the draft is, on average, the least valuable in the entire first round."
That surprising result has implications not only for football, but also for any domain where organizations try to select talent, whether C.E.O.’s or their own “rookies” — newly minted graduates."

In related news, the Times has an amusing graphic comparing some star CEOs' compensation to their companies' performance.

Richard Thaler has an article in today's New York Times on mispricing of NFL talent. In the NFL draft, losing teams trade away too much for "first pick" players, Thaler and Cade Massey argue in a recently updated paper.

"We found that the teams choosing early in the draft generally don't, in fact, get the players that provide the most value per dollar. Our paper is titled "The Loser's Curse" because we discovered that the first pick in the draft is, on average, the least valuable in the...

In response to many e-mails: Priceless is now available in a Kindle edition. (The backstory on that here and here.)
Amazon's Kindle edition page uses a number of pricing strategems. They include—
• Charm prices. These are prices ending in 9, which often have an uncanny motivating effect on consumers debating whether to buy. Amazon's eBook price is a super-charming $9.99.
• Advertised reference prices. Amazon quotes a "digital list price" of $12.99. The "What's this?" button informs the curious shopper that "Digital List Price is the suggested retail price set by the publisher." But you don't pay that; instead, the "digital list price" presents an appealing contrast to Amazon's lower price. Lest anyone miss the point, Amazon crosses out the digital list price and gives the discount in dollars and in percent (computed from the not-so-comparable list price of the hardcover book, $26.99).
• "Free." You're just a mouse click away from sampling the book for free.
• "Don't wrap all the Christmas presents in one box." Coined by economist Richard Thaler, this dictum holds that a product's benefits should be enumerated rather than lumped together. Consumers are more likely to buy a Swiss Army knife than a penknife, all things being equal. Thaler's rule is practically the gospel of infomericals. So, if you buy Priceless now, we'll not only send you a fantastic book… we'll throw in "wireless delivery via Amazon Whispernet"… plus, it's "text to speech enabled"!