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Michael Rushton on pricing the arts

What does ChatGPT know?

February 10, 2023 by Michael Rushton Leave a Comment

In my last post I expressed skepticism that movie cinemas in the US could “scale the house” with much success (people were quick to tell me “But in Europe, but in New York”, which is fair, but I’m talking the multiplex in Bloomington here). I mentioned in passing that cinemas do use price discrimination, but at the concession stand – keeping ticket prices somewhat low, to attract customers generally on the fence about coming to the movies, but recognizing that your avid moviegoers are most happy to load up at the concession stand, and you can take advantage of their high willingness to pay with popcorn and pop. Here‘s a study.

In today’s FT (paywalled, I believe), Tim Harford talks about new developments in AI, and how ChatGPT is bound to produce bullshit, in the Frankfurt sense of being maybe right or maybe wrong, but with the appearance of confidence in the answer, without concern whether it has its facts straight:

And how could it be otherwise? ChatGPT doesn’t have a model of the world. Instead, it has a model of the kinds of things that people tend to write. This explains why it sounds so astonishingly believable. It also explains why the chatbot can find it challenging to deliver true answers to some fairly straightforward questions.

So I gave it a try:

Me: Why is popcorn so expensive at the movies?

ChatGPT: Popcorn is expensive at movie theaters because it is a high-margin snack food. Theaters mark up the price of popcorn to increase profits, since they typically have a captive audience who are there to watch the movie and may be less price-sensitive when it comes to purchasing concessions. Additionally, the cost of popcorn equipment and ingredients, as well as the labor required to make it, contribute to the high price.

The first sentence is a description, but not an explanation. I want to know why it is high-margin. The second sentence tells me cinemas are commercial ventures (I know) with a captive audience. But that has always been inadequate as an answer, because people going to the movies *know* they will be captive, and can have a meal beforehand or plan on one afterwards. It’s not a trap. The third sentence contradicts the first: is it high-margin, or does it have high costs (and so is low margin)? Finally, note the cost of popcorn equipment is a sunk cost, not a marginal cost.

And yet … superficially the answer given does not look crazy or ill-informed. A student (not after taking my course, I should add!) might find it fairly plausible.

But Tim Harford is correct.

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Michael Rushton

Michael Rushton taught in the Arts Administration programs at Indiana University, and lives in Bloomington. An economist by training, he has published widely on such topics as public funding of the … MORE

About For What It’s Worth

What’s the price? Everything has one; admission, subscriptions, memberships, special exhibitions, box seats, refreshments, souvenirs, and on and on – a full menu. What the price is matters. Generally, nonprofit arts organizations in the US receive about half of their revenue as “earned income,” and … [Read More...]

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