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Decision making under risk in Deal or No Deal

Author

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  • Nicolas de Roos

    (Faculty of Economics and Business, University of Sydney, Sydney, Australia)

  • Yianis Sarafidis

    (CRA International, Washington (DC), USA)

Abstract

We analyse the choices of 399 contestants in the Australian version of the television game show Deal or No Deal. We calculate risk aversion bounds for each contestant, revealing considerable heterogeneity. We then estimate a structural stochastic choice model that captures the dynamic decision problem faced by contestants. To address individual heterogeneity, we nest the dynamic problem within the settings of both a random effects and a random coefficients probit model. Our structural model produces plausible estimates of risk aversion, confirms the role of individual heterogeneity and suggests that a model of stochastic choice is indeed appropriate. We find mixed evidence of greater risk aversion by females. We also examine generalizations to expected utility theory, finding that the rank-dependent utility model adds non-negligible explanatory power and indicates optimism in probability weighting. Finally, we test, but are unable to confirm, the existence of an endowment effect for lotteries. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Nicolas de Roos & Yianis Sarafidis, 2010. "Decision making under risk in Deal or No Deal," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 987-1027.
    • Handle: RePEc:jae:japmet:v:25:y:2010:i:6:p:987-1027
    DOI: 10.1002/jae.1110
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    References listed on IDEAS

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