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

Author

Listed:
  • Thierry Post
  • Martijn J. van den Assem
  • Guido Baltussen
  • Richard H. Thaler

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. (JEL D81)

Suggested Citation

  • Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
  • Handle: RePEc:aea:aecrev:v:98:y:2008:i:1:p:38-71 Note: DOI: 10.1257/aer.98.1.38
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    References listed on IDEAS

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    1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    2. Caroline M. Hoxby, 2000. "Does Competition among Public Schools Benefit Students and Taxpayers?," American Economic Review, American Economic Association, pages 1209-1238.
    3. Jesse Rothstein, 2007. "Does Competition Among Public Schools Benefit Students and Taxpayers? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2026-2037, December.
    4. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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