Decision Making under Risk in Deal or No Deal

35 Pages Posted: 7 Feb 2006  

Nicolas de Roos

University of Sydney

Yianis Sarafidis

Charles River Associates (CRA)

Date Written: February 3, 2006

Abstract

We analyse the choices of 399 contestants in the Australian version of the television game show Deal or no Deal. As a first pass at the data, 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 also examine generalisations to expected utility theory, finding that the rank dependent utility model provides substantially improved explanatory power. Finally, we do not find strong evidence in favour of an endowment effect for lotteries.

Keywords: decision making under risk, risk aversion, expected utility, rank dependent utility

JEL Classification: D81, C93

Suggested Citation

de Roos, Nicolas and Sarafidis, Yianis, Decision Making under Risk in Deal or No Deal (February 3, 2006). Available at SSRN: https://ssrn.com/abstract=881129 or http://dx.doi.org/10.2139/ssrn.881129

Nicolas De Roos

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Yianis Sarafidis (Contact Author)

Charles River Associates (CRA) ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States

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