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American Economic Review: Vol. 98 No. 1 (March 2008)

AER Volume. 98, Issue 1 | Previous ArticleNext Article

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

Article Citation

Post, Thierry, Martijn J. van den Assem, Guido Baltussen, and Richard H. Thaler. 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show." American Economic Review, 98(1): 38-71.

DOI: 10.1257/aer.98.1.38

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)

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Authors

Post, Thierry (Erasmus U Rotterdam)
van den Assem, Martijn J. (Erasmus U Rotterdam)
Baltussen, Guido (Erasmus U Rotterdam)
Thaler, Richard H. (U Chicago)

JEL Classifications

D81: Criteria for Decision-Making under Risk and Uncertainty