Your PDF has successfully downloaded.

You may be interested in finding more content on these topics:


You are not currently logged in.

Access JSTOR through your library or other institution:


Log in through your institution.

Journal Article

Does Hollywood Make Too Many R‐Rated Movies? Risk, Stochastic Dominance, and the Illusion of Expectation

Arthur De Vany and W. David Walls
The Journal of Business
Vol. 75, No. 3 (July 2002), pp. 425-451
DOI: 10.1086/339890
Stable URL:
Page Count: 27
Were these topics helpful?
See something inaccurate? Let us know!

Select the topics that are inaccurate.

  • Download PDF
  • Add to My Lists
  • Cite this Item
We're having trouble loading this content. Download PDF instead.


We estimate the probability distributions of budgets, revenues, returns, and profits to G‐, PG‐, PG13‐, and R‐rated movies. The distributions are non‐Gaussian and show a self‐similar stable Paretian form with nonfinite variance and nonstationary mean. The profit distributions have asymmetric tails, which means that Hollywood could trim its “downside” risk while increasing its “upside” possibilities by shifting production dollars out of R‐rated movies into G‐, PG‐, and PG13‐rated movies. Stars who are willing to appear in edgy, counterculture R‐rated movies for their prestige value may induce an “illusion of expectation” leading studios to “green‐light” movies that have biased expectations.

Notes and References

This item contains 22 references.

  • ['Anderson, J. V., and Sornette, D. 1999. Have your cake and eat it too: Increasing returns while lowering large risks. Working paper. Los Angeles: University of California, Los Angeles, Institute for Geophysics and Planetary Physics.']
  • ['De Vany, A. S., and Lee, C. 2000. Motion pictures and the stable Paretian hypothesis. IMBS working paper. Irvine: University of California, Irvine.']
  • ['De Vany, A. S., and Walls, W. D. 1996. Bose‐Einstein dynamics and adaptive contracting in the motion picture industry. Economic Journal 439 (November): 1493–1514.']
  • ['De Vany, A. S., and Walls, W. D. 1999. Uncertainty in the movie industry: Does star power reduce the terror of the box office? Journal of Cultural Economics 23 (November): 285–318.']
  • ['De Vany, A. S., and Walls, W. D. 2000a. Motion picture profits: How can they be so elusive and yet so large? IMBS working paper. Irvine: University of California, Irvine.']
  • ['De Vany, A. S., and Walls, W. D. 2000b. Private information, demand cascades and the blockbuster strategy. IMBS working paper. Irvine: University of California, Irvine.']
  • ['Fama, E. 1963. Mandelbrot and the stable Paretian hypothesis. Journal of Business 36 (October): 420–29.']
  • ['Fama, E. 1965. The behavior of stock market prices. Journal of Business 38 (January): 34–105.']
  • ['Ghosh, A. 2000. The size distribution of international box office revenues and the stable Paretian hypothesis. Working paper. Irvine: University of California, Irvine, Economics Department.']
  • ['Goldman, W. 1983. Adventures in the Film Trade. New York: Warner.']
  • ['Huang, C. F., and Litzenberger, R. H. 1988. Foundations for Financial Economics. New York: North Holland.']
  • ['Mandelbrot, B. 1963a. New methods in statistical economics. Journal of Political Economy 71 (October): 421–40.']
  • ['Mandelbrot, B. 1963b. The variation of certain speculative prices. Journal of Business 36 (October): 394–419.']
  • ['Mandelbrot, B. 1967. The variation of some other speculative prices. Journal of Business 40 (October): 393–413.']
  • ['McCulloch, J. H. 1996. Financial applications of stable distributions. In G. S. Maddala and C. R. Rao (eds.), Statistical Methods in Finance. New York: North Holland.']
  • ['Medved, M. 1992. Hollywood vs. America: Popular Culture and the War on Traditional Values. New York: HarperCollins.']
  • ['Ravid, S. A. 1999. Information, blockbusters, and stars: A study of the film industry. Journal of Business 72 (October): 463–86.']
  • ['Scherer, F. M.; Harhoff, D.; and Kukies, J. 2000. Uncertainty and the size distribution of rewards from innovation. Evolutionary Economics 10 (January): 175–200.']
  • ['Simonoff, J. S., and Sparrow, I. R. 2000. Predicting movie grosses: Winners and losers, blockbusters and sleepers. Chance 13 (Summer): 15–24.']
  • ['Sornette, D., and Zajdenweber, D. 1999. The economic return of research: The Pareto law and its implications. European Physical Journal B 8:653–64.']
  • ['Stuart, A.; Ord, J. K.; and Arnold, S. 1999. Kendall’s Advanced Theory of Statistics. Vol. 2A. 6th ed. London: Arnold.']
  • ['Walls, W. D. 1997. Increasing returns to information: Evidence from the Hong Kong movie market. Applied Economics Letters 4 (May): 187–90.']