Matt Vaughan
King of Moody Rants
Bronze Level
@ duggs and loafes
Well, the only reason "risk aversion" comes into play is because of the implied utility of the money. We technically risk nothing by playing, since it's not like 50% of the time we win $10k, and 50% of the time we lose $5k, or something. I think that would be a clearer example of risk aversion (if we compare it to 100% of the time getting nothing but paying nothing).
It becomes purely about the utility imo. If a contestant was offered these options:
A
$20 -> 50%
$30 -> 50%
(EV = $25)
B
$10 -> 50%
$50 -> 50%
(EV = $30)
Then unless the contestant isn't so hot with math, he chooses B every time. But if it becomes more like:
A
$4,000 -> 50%
$10,000 -> 50%
(EV = $7,000)
B
$2,000 -> 50%
$20,000 -> 50%
(EV = $11,000)
A lot of people become way more likely to choose A, because the utility of being guaranteed $4k is enough higher than the utility of being guaranteed $2k, so even though the EV difference is relatively large compared to the guaranteed payouts, they take the lower EV for the higher guarantee. It gets even crazier when you start adding really big sums with really small ones compared to more "in between" options.
Measuring the utility (or perceived utility) is pretty tough to do imo too, which is part of what makes games like deal or no deal interesting in the first place.
Oh, and we like drama.
Edit: Btw, most poker players won't make "more correct" decisions than normal people of their same economic situation, because you won't ever get even remotely close to the long-run in game shows
Well, the only reason "risk aversion" comes into play is because of the implied utility of the money. We technically risk nothing by playing, since it's not like 50% of the time we win $10k, and 50% of the time we lose $5k, or something. I think that would be a clearer example of risk aversion (if we compare it to 100% of the time getting nothing but paying nothing).
It becomes purely about the utility imo. If a contestant was offered these options:
A
$20 -> 50%
$30 -> 50%
(EV = $25)
B
$10 -> 50%
$50 -> 50%
(EV = $30)
Then unless the contestant isn't so hot with math, he chooses B every time. But if it becomes more like:
A
$4,000 -> 50%
$10,000 -> 50%
(EV = $7,000)
B
$2,000 -> 50%
$20,000 -> 50%
(EV = $11,000)
A lot of people become way more likely to choose A, because the utility of being guaranteed $4k is enough higher than the utility of being guaranteed $2k, so even though the EV difference is relatively large compared to the guaranteed payouts, they take the lower EV for the higher guarantee. It gets even crazier when you start adding really big sums with really small ones compared to more "in between" options.
Measuring the utility (or perceived utility) is pretty tough to do imo too, which is part of what makes games like deal or no deal interesting in the first place.
Oh, and we like drama.
Edit: Btw, most poker players won't make "more correct" decisions than normal people of their same economic situation, because you won't ever get even remotely close to the long-run in game shows
