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 when well-defined and large real monetary amounts are at stake.
American Economic Review 2008
1 comment:
That is brilliant. I've always played Deal or No Deal from the comfort of the living room with a bit of expected utility theory. Not a bad tool to have...
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