Bad Decisions in Deal or No Deal

Why do so many people leave Deal or No Deal empty handed?  Because they make poor decisions.  I have some thoughts about what drives this decision making.  Let me tell you about this guy on Friday's show and what he did.

First of all, his run on the show began on the previous episode, which I didn't watch.  So, I don't know much about his background other than he is a stay at home dad, and they were hoping to win enough from the show for the family of four's dream trip to Fiji.

As Friday's show began, he had turned down a $34,000 offer with six cases remaining, $5, $10, $200, $300, $5000, and $300,000.  Hitting the $300,000 case would be catastrophic.  He hit the $5,000 case, bringing in an offer of $52,000.  The highest previous offer was $55,000.  He gave a corny speech about great people making you believe, and little people making you doubt your dreams.  Sounded like the kind of talk you hear at multi level marketing meeting.

He turns down the $52,000.  I would have taken it.  He hits the $300 case, bringing the offer to $76,000.  Now the two kids (cute little boy and girl around 10 and 11) tell dad to take the offer.  The kids are right.  Not just because of what is about to happen.  Wife says that she "feels good" that he has the $300,000.  He doesn't take it the deal.  Wife yells out how much she loves him and believes in him, and the kids groan, "Oh my God, Dad!"

He opens the next case.  Disaster.  $300,000 is knocked out.  "I told you, Dad," the girl almost crying.  Offer drops to Fifty Bucks. Girl looks ready to cry, boy looks pissed off.  He knocks out $200, and the offer goes to eight dollars.  Finally, he takes the deal.

So, where did he go wrong?  Behavioral economics gives us some insight into the poor decisions we make.  What errors did our Peter Brady look-a-like make?

Anchoring.  Anchoring occurs when we rely too heavily on a piece of information when we make a decision.  For example, we may note that a stock's 52 week high is $80 and currently trading at $68.  We may avoid selling because we belive that the $80 number carries some weight.  In the case of our contestant, the $55,000 offer that he had previously received before knocking off a big number was likely at play in saying no to $52,000 later.  "I can't take that.  I HAD $55,000!" Same reason people don't sell losing stocks until the loss is so great they are essentially throwing in the towel.

Gambler's Fallacy.  Gambler's Fallacy occurs when players assign mental probabilities to random events based on past unrelated events.  When someone believes that an event is less likely to occur because it has not happened for a period of time, they are victim to Gambler's Fallacy.  Our contestant had successfully (luckily) chosen cases without large amounts a few times in a row.  He knows that it is random, but he likely felt that he had a good shot at "one more time."

Self Serving Bias.  Self Serving Bias occurs when we claim more responsibility for our successes than our failures.  It is believing that you made a "smart" decision when random events work in your favor, and were "unlucky" when random events work against you.  It skews our decision making to the over confident.  "I believe in you!" his wife had shouted.  You believe in what?  His random number generating skills?  My computer does the same thing.

Contestants on this show also frequently suffer from poor analytical skills.  From the $76,000 offer, the risk/reward calculations were pretty straight forward.  The risk is simple, it is virtually 100%. Choose the $300,000 case and you go from $76,000 to under $100.  The reward is more finite.  Let's say he choses one of the small cases. With three remaining cases, one at $300k, and two very small ones, the mean is basically $100k, and the offer would likely have been about $96,000, 26% higher than the previous offer.  He is risking a 100% loss for a 26% gain, with a probability of success at three out of four. Statistically, the show challenges you by making the probabilities close to a wash.  Play the game 100 time, you go for it.  The law of large numbers works in your favor here.  Get one shot at it, and a 26% gain for against a risk of 100% loss is not a game in which I would engage.

Comments

[financial freedumb]

I was just watching this one where the lady left making a deal at $50! It was kind of sad. She had a $38k offer she could've took just before...

[Hazzard]

I watched that show a couple times but found I didn't like the suspense. It was amazing to see the bad decisions some people made. Your post is dead on right!

[lamoneyguy]

I agree about the artifical suspense. I would never watch the show without Tivo. Fast Forward that crap!

[frankyj]

I have to admit, I am addicted to that show. My wife and I watch every night. She usually starts off with rooting for the people, but then she gets "mad" at them as they keep not taking deals. Me, I'm always rooting for them to pick the big numbers. What can I say, I'm a cynical bastard :).

On a side note, watching the show has made me realize that I'm more risk-averse than I thought. I usually find myself taking offers around $50,000 even if its early in game, which is when the banker's offer is really lower than the expected value.

[Cap]

this show gives me ANGER!

I don't even watch it. My mom will watch it and I HEAR IT.

contestants family makes me want to punch out the TV screen. I always wonder are they setting up the family.

There's always that one guy that says "take the money, it's a lot of money, it'll pay for your down payment, car, bills, blah blah" the usual common sense stuff.

and then there's the broke ass family members who screams "NO DEAL! LETS RIDE IT OUT BABY!"

or the little kid (why are you listening to your kid who cant do basic arithmetic) that keeps screaming "NO DEAL NO DEAL!"

ANGER! If that was my little brother screaming, I'll be punching him in the face on national TV.

[Cap]

I must have missed that show you were talking about. For once the little kids had more sense than their parents.

what a joke! speech about dreams? you're on a game show, not the Olympics, jack ass.

[lamoneyguy]

whoa! Settle down there Cap. Funny stuff. I'm like you, Frank. Keep saying no deal, how's a buck for you? Could you use a buck? Only after they have passed on very good offers. Then they deserve what they have coming.

[jim]

I'd risk it all!

[A Texan in Bavaria]

When I've played the online game, I find myself dealing around $50,000.

I have $13k in student loans and $4300 left on my car (go me!), so no horrid, crippling debt that I see no way out of.

Hm. That's about my take-home pay. Maybe that has something to do with it. Willing to hand me a year's take home pay? I'll take it, turning down my shot at much more.

[anonymous]

Truth is, if we ever get to see the ultimate decision between $0.01 and $1,000,000, the deal, no matter the amount (but you could expect it to be way below 500 000$, maybe 200 000$?) is way better than going no deal and having only 50% chances to get the big win.

All that being said, you ignored the fact that ANY amount (even the $0.01) is superior to what they had before going to the show.

[John]

Nice analysis and frankyi the wording of your correct observations are as hilarious as the show!

Am I right in analyzing the last comment like this? The question is essentially how much would you pay to have a 50/50 shot at $1 mil, and that depends on the person's net worth and risk aversion. I know that paying even $5k (i.e., not taking a $5k offer from the banker) for 50% shot at $1 mil is the kind of odds I'd love to see in life, but since I KNOW I'm not going to see it again I might be risk averse and not do it if I can't spare the $5k. And is it REALLY any different when I've been given the $5k by the show? Yes, it's "house money" but it pays off $5k in 19% credit card debt just as well as $5k I earn. All the better that I didn't have to work for it! I'm interested to hear comments if anyone is reading.

[UKMoneyPot]

As someone who doesn't gamble, it's always amusing to watch people getting greedy and pushing the envelope just that little bit too far!

[Snoop]

I totally agree with everything said unfortunately I think that they filter any rational thinkers from being on the show.

[~Dawn]

If I was forced at gun-point to play that game- My goal would be 50K (30k after taxes) and then I would go home!

[Writer's Coin]

Brilliant insight into this fascinating show. I read an interview with the host in a magazine where he's basically says that he thinks most players are pretty dumb, that they get greedy, etc. It was interesting to hear that from the host, but he's right.

You never HAD X amount of dollars, you came in with nothing in your pockets so go home with something.

[Anonymous]

Is it possible to go against human nature? Most people feel that they are "luckier" than they really are. Plus they are high off the excitement of being on TV. Part of the human mind is irrational, yet very powerful in motivating us. For most people, the child-like, irrational part takes over and we want to believe in miracles. The entertainment industry thrives on this. The guy offering the money knows all this, and it's cruel how he toys with the contestants. He knows the contestants will more often than not act like idiots. But, geez, I'm still wondering why I married my ex. I'm not perfect.

[Lane]

How can people say they would take the $50,000 offer without even knowing what the board is, or what stage of the game they are in? I've seen higher first offers than that. I'm rooting for the day, though, when they have one of those 'Million Dollar Missions' and the first offer is about $250,000 (I saw one episode where this was the case), and the contestant says, "That'll work!" and takes the deal right off the bat.

The key to success in 'Deal or No Deal' is to take an isolated, objective look at the board at the beginning of each round when making your decision. As the author of this post points out, though, most people factor in the board they had in previous rounds, and most often are trying to get back to an offer level they had then.

If people could look at each round as a brand new game, and deal ONLY with that game, they wouldn't make the bone-headed moves that they do. Of course, it wouldn't be as much fun to watch then, either.

[Clay]

I can't help but cheering for the BANKER when I watch some moron throw away $30k - $40k - $80k - like that much money won't make something happen in their lives?? Go Banker! Go Banker! When someone tells us they "want" something that needs about $30k and then looses it all while going for $300k - YEA!!!!!

[helen]

How do i play for money real money>>>.

[Bankruptcy Benjamin]

We just got this show in Australia. What happened to shows that reinforce at least some element of skill rather than just random chance?

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