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Risky Choice and Type-Uncertainty in "Deal or No Deal?"

  • Gee, C.
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    This paper uses data from the popular television game-show, "Deal or No Deal?", to analyse the way individuals make choices under risk. In a unique approach to the problem, I present a formal game-theoretical model of the show in which both the contestant and the banker are modelled as strategic players. I use standard techniques to form hypotheses of how rational expected utility-maximisers would behave as players in the game and I test these hypotheses with the relevant choice data. The main result is that an increasing o¤er function is the result of optimal behaviour when the banker is uncertain about the contestant.s risk attitudes. This result provides a theoretical foundation to the empirical model of the banker that pervades the literature. Estimates of the coefficient of relative risk aversion are consistent with estimates from other studies and estimates of the discernment parameter suggest contestants have difficulty making choices.

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    File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0758.pdf
    File Function: Working Paper Version
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    Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0758.

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    Length: 24
    Date of creation: Nov 2007
    Date of revision:
    Handle: RePEc:cam:camdae:0758
    Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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    4. Matthew Rabin, 2001. "Risk Aversion and Expected Utility Theory: A Calibration Theorem," Levine's Working Paper Archive 7667, David K. Levine.
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    6. Berk, Jonathan B & Hughson, Eric & Vandezande, Kirk, 1996. "The Price Is Right, but Are the Bids? An Investigation of Rational Decision Theory," American Economic Review, American Economic Association, vol. 86(4), pages 954-70, September.
    7. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    8. Rafael Tenorio & Timothy N. Cason, 2002. "To Spin or Not to Spin? Natural and Laboratory Experiments from "The Price is Right"," Economic Journal, Royal Economic Society, vol. 112(476), pages 170-195, January.
    9. Szpiro, George G, 1986. "Measuring Risk Aversion: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 156-59, February.
    10. Metrick, Andrew, 1995. "A Natural Experiment in "Jeopardy!"," American Economic Review, American Economic Association, vol. 85(1), pages 240-53, March.
    11. Raj Chetty, 2003. "A New Method of Estimating Risk Aversion," NBER Working Papers 9988, National Bureau of Economic Research, Inc.
    12. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
    13. Pavlo Blavatskyy & Ganna Pogrebna, 2006. "Loss Aversion? Not with Half-a-Million on the Table!," IEW - Working Papers 274, Institute for Empirical Research in Economics - University of Zurich.
    14. Alma Cohen & Liran Einav, 2005. "Estimating Risk Preferences from Deductible Choice," Discussion Papers 04-031, Stanford Institute for Economic Policy Research.
    15. Blake, David, 1996. "Efficiency, Risk Aversion and Portfolio Insurance: An Analysis of Financial Asset Portfolios Held by Investors in the United Kingdom," Economic Journal, Royal Economic Society, vol. 106(438), pages 1175-92, September.
    16. Gertner, Robert, 1993. "Game Shows and Economic Behavior: Risk-Taking on "Card Sharks."," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 507-21, May.
    17. Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-97, December.
    18. 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.
    19. Ait-Sahalia, Yacine & Lo, Andrew W., 2000. "Nonparametric risk management and implied risk aversion," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 9-51.
    20. Connel Fullenkamp & Rafael Tenorio & Robert Battalio, 2003. "Assessing Individual Risk Attitudes Using Field Data From Lottery Games," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 218-226, February.
    21. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
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    23. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
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