Thierry Post () (Faculty of Economics, Erasmus Universiteit Rotterdam) Guido Baltussen () (Faculty of Economics, Erasmus Universiteit Rotterdam) Martijn van den Assem (Faculty of Economics, Erasmus Universiteit Rotterdam)
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The popular television game show 'Deal or No Deal' offers a unique opportunity for analyzing decision making under risk: it involves very large stakes, simple take-or-leave decisions that require minimal skill or strategy and near-certainty about the probability distribution. Based on a panel data set of the choices of contestants in all game rounds of 53 episodes from Australia and the Netherlands, we find an average Pratt-Arrow relative risk aversion (RRA) between roughly 1 and 2 for initial wealth levels between 0 and 50,000. The RRA differs substantially across the contestants and some even exhibit risk seeking behavior. The cross-sectional differences in RRA can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, consistent with the 'break-even effect', the RRA strongly decreases following earlier losses and risk seeking arises after large losses.
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
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