Risky Choice and the Relative Size of Stakes

31 Pages Posted: 29 May 2007 Last revised: 6 May 2008

Guido Baltussen

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Thierry Post

Koc University - Graduate School of Business

Martijn J. van den Assem

VU University Amsterdam - Faculty of Economics and Business Administration

Date Written: May 2008

Abstract

We examine framing effects by analyzing how risky choice depends on the absolute and relative size of the amounts at stake, using an extensive sample of choices from ten different editions of the large-stake TV game show Deal or No Deal. Our analyses within and across the samples suggest that risky choice is highly sensitive to the context, as defined by the initial set of prizes in the game. In each sample, contestants respond in a similar way to the stakes relative to their initial level, even though the initial level differs widely across the various editions. Amounts therefore appear to be primarily evaluated relative to a subjective frame of reference rather than in terms of their absolute monetary value.

Keywords: Decision making under risk, Framing, Expected utility theory, Prospect theory

JEL Classification: D81, C93

Suggested Citation

Baltussen, Guido and Post, Thierry and van den Assem, Martijn J., Risky Choice and the Relative Size of Stakes (May 2008). Available at SSRN: https://ssrn.com/abstract=989242 or http://dx.doi.org/10.2139/ssrn.989242

Guido Baltussen

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Thierry Post

Koc University - Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sariyer
Istanbul
Turkey

Martijn J. Van den Assem (Contact Author)

VU University Amsterdam - Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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