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American Economic Review Vol. 98 No. 1 2008

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

Thierry Post1; Martijn J. van den Assem2; Guido Baltussen3; Richard H. Thaler4

1 Erasmus School of Economics, Erasmus University of Rotterdam, P.O. Box 1738, 3000 DR, Rotterdam, the Netherlands. · 2 Erasmus School of Economics, Erasmus University of Rotterdam. · 3 Tinbergen Institute and Erasmus School of Economics, Erasmus University of Rotterdam. · 4 Graduate School of Business, University of Chicago, 5807 S. Woodlawn Ave., Chicago, IL 60637.

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.

DOI
10.1257/aer.98.1.38
Volume
98
Issue
1
Pages
38-71
Language
en
Sources
openalex crossref bibtex:phds-export.bib openalex

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