"Deal or No Deal" (#26; Topic G)

Yesterday's Wall Street Journal has a front-page story, "Why game shows have economists glued to their TVs;" one such game is "Deal or No deal." Being interested in game theory (made famous by the 1996 and 2005 Nobel laureates in economics), I saw one a week or so ago. The focus of the program is on 30 briefcases, each containing an amount ranging from 1 cent to $1 million. A contestant selects one briefcase; plays an elimination game to infer the amount in the briefcase selected; and decides, after each round of play, whether to accept an offer from the host (in which case play stops) or to continue playing. In each round, 5 numbers are called; after revealing their contents and retiring their number, an offer is made. The game becomes suspenseful when only 5 or fewer briefcases remain. In the program I saw, the 3 remaining cases contained $10,000, $200,000, and $300,000; and the offer was $167,000. The contestant, a bricklayer, after consulting his brain trust (his mother, his wife, and 2 friends), decided to accept the offer -- a rather rational decision, as the probability-based fair value at this juncture is $170,000. Were this offer declined, another number would be called. If the number called contained $10,000, the offer would have to jump to $250,000; if the number called contained $300,000, the offer would drop to $105,000. The game show is thus a good test of one's risk tolerance -- a more speculative player might decline the $167,000 offer in favor of calling another number. Very educational -- it certainly yields valuable research data for economists.
Posted 7:25 pm, Friday, January 13, 2006