Game Theory, Deal or No Deal

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From the show's introduction in December 2005, NBC has had tremendous success with the game show Deal or No Deal. The game show, which was created in the Netherlands, pits acontestant against the mysterious banker. The contestant is trying for the case with $1 million,while the banker's stated goal is to get the contestant to go home with as little money as possible while also trying to keep the game going for as long as possible. Deal or No Deal is a unique game show in that it takes virtually no skill on the part of the contestant. As long as the contestant can count to 26 (the number of cases), he can play the game. But this lack of skill requirement allows us, as economists, to study how people make decisions in a situation where all contestants are virtually all equal. In situations such as placing wagers for Final Jeopardy, contestants need to factor in their confidence in their own abilities. In Deal or No Deal, the only factor is the amount of risk that particular contestant is willing to take on. The contestant picks one case, which contains the amount of money he will take home, unless he takes a deal before the end of the game. He then picks six cases to open to find out which values are not in his case. After six cases, the Banker offers the contestant a sum of money to end the game. If the contestant rejects the offer, he must open the cases before getting the next offer. The game continues, with the number of cases being opened in each round decreasing my one; so round three has four cases opened, round four has three cases open, and so on. At the end, if the contestant has not taken a deal, he takes home the amount of money in the case he picked at the beginning of the game. The Banker is a strategic player in some respects, but not in others. According to Roos andSara dis(2006), the Banker uses a set formula to determine the offer a contestant is given in each round. We, therefore, cannot say that the banker decides how much to offer a...
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