Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show

Thierry Post
Koc University – Graduate School of Business

Martijn J. Van den Assem
VU University Amsterdam – Faculty of Economics and Business Administration

Guido Baltussen
Erasmus University Rotterdam (EUR) – Erasmus School of Economics (ESE)

Richard H. Thaler
University of Chicago – Booth School of Business; National Bureau of Economic Research (NBER)

February 20, 2012

American Economic Review, Vol. 98, No. 1, pp. 38-71, March 2008

Abstract:

We examine the risky choices of contestants in the popular TV game show «Deal or No Deal» and related classroom experiments. Contrary to the traditional view of expected utility theory, the choices can be explained in large part by previous outcomes experienced during the game. Risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes. Our results point to reference-dependent choice theories such as prospect theory, and suggest that path-dependence is relevant, even when the choice problems are simple and well-defined, and when large real monetary amounts are at stake.

Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show

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