Deal or No Deal Redux: Behavioral Economics of the TV Game Show

Another blast from the blogging past ... I wrote a blog entry a while back about the TV game show Deal or No Deal on NBC (in the U.S.) titled Deal or No Deal: Risk Aversion, Loss Aversion, and Fair Odds (or lack thereof). In that blog entry, I wrote about my observations and thoughts about the the possible implications of the game show for our understanding of decision making in the face of risk and uncertainty. I also mentioned an article by two economists who had studied the Italian version of the show.

I just came across another research article on the show. It is co-written with Richard Thaler, a behavioral economist at the University of Chicago. It analyzes the show based on the versions of the show in Belgium, Netherlands, and Germany. You can download the paper at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=636508

The following is from the abstract of the paper:

The popular TV game show “Deal or No Deal” offers a unique opportunity for analyzing decision making under risk: it involves very large and wide-ranging stakes, simple stop-go decisions that require minimal skill, knowledge or strategy, and near-certainty about the probability distribution. We examine the choices of 84 contestants from Belgium, Germany and the Netherlands. In contradiction with expected utility theory, choices can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, risk aversion decreases strongly after earlier expectations have been shattered by unfavorable outcomes, consistent with the “break-even effect”. Our results point in the direction of frame-dependent choice theories such as prospect theory and suggest that phenomena such as framing and path-dependence are relevant, even when large real monetary amounts are at stake.

As far as I know it, no one has yet put out a similar research paper based on the American version of the show. Stay tuned!