You are at some juncture in a television show where you have been given a choice - take $500K right now, or face a situation in which you either win $1 million or you lose it all (well, you get to keep $25,000 but that’s almost like losing it all).
What would you choose?
Personally, this is a no-brainer for me; take the $500K and be happy.
However, the dude (Steve) on episode #113 of Are You Smarter Than a 5th Grader, took the 50% chance and lost it all (I am basing this 50 % chance on a two-outcomes basis - either you win it or you lose it. The mathematically true probability of winning the money, is a bit complicated affair to calculate and would be far far less than this). I thought it was a small lesson in “risk perception” there. Perhaps, Steve didn’t have the patience to think it through at the time (public performance pressure and the smell of free money can make people do weird things) - but I am sure he won’t try to make such a bet ever again.
This sort of goes in tune with my post earlier this week about how you would treat a windfall, in which I mentioned a potential tendency to take extra risk (more than reasonable risk) and show excessive optimism, when it comes to free money.
Consider this:
You have managed to accumulate $500,000 in savings. Now, a shrewd friend gives you an honest and genuine investment option - invest it in this so-and-so venture and this will either double your money or you will will get back just $25,000. Would you do it?
Personally, I don’t think many people (in their normal surroundings) will take that risk. Steve’s case was no different - he already had the possession of his $500,000; the money was his to keep and he should have treated it like his hard-earned money - but a combination of factors (most probably the feeling of “free money” and the excessive optimism), made him put his money at risk.
Have you noticed that, in most TV shows, such make-or-break options (options with the highest risk) are usually offered near the penultimate step - around which the participants are at the peak of their optimistic self and most likely to lose it all.
Come to think of it, even the gambling industry probably works a lot on this concept. Perhaps (I don’t have any concrete proof here), the worst gambling losses may be occurring when a gambler wins money right at the onset of whatever game he/she is playing. Early wins may be altering the risk perception of a gambler by making him/her overly optimistic on future chances and encourages more gambling. Have you experienced something similar in a casino anytime?
Greed complicates the matters even more.
(Disclaimer: I don’t really *watch* the TV show mentioned above, but sometimes it’s more entertaining than flipping channels )
Trent
ОтветитьУдалитьJun 8th, 2007 at 5:11 pm
Game shows select for contestants who will be risky like that. That’s why you won’t see an accountant on Deal or No Deal.
broknowrchlatr
Jun 8th, 2007 at 5:50 pm
I’d even take $400k over a 50% chance at $1mm. The first $500k is worth way more than teh second $500k.
Super Saver
Jun 8th, 2007 at 6:20 pm
Golbguru,
It’s only gambling if one doesn’t know the answer. It would have been a 100% chance for $1 million if he knew the right answer, which he didn’t.
Not seeing the choices, I don’t know if I would have gotten the right answer of Explorer I. I would have needed eliminate incorrect answers like Mercury, Sputnik etc to get there.
The Digerati Life
Jun 8th, 2007 at 6:20 pm
I’d fake being a risk taker then if I become eligible as a player, I’ll play conservatively. Wow, that’s a HUGE amount to lose. I bet the dude will regret it to the end of his time. I certainly would!
Super Saver
Jun 8th, 2007 at 6:29 pm
Golbguru,
Here’s another interesting thought.
After answering the Million dollar question, another question is would you keep $50 or risk in on a 50% chance to win $100? Statistically, the answer to both should be the same. So a risk averse game player won’t get past the first correct answer :-)
golbguru
Jun 8th, 2007 at 6:35 pm
Trent: Wow..so there is profiling at these places too? That’s interesting.
broknowrchlatr: I don’t want to say the dollar amount that I would have taken to avoid the 50% chance….it’s much less than $500K and more than $25,000. :)
Super Saver: Probability is counted before the question is put to the guy. For any question in the last round (with no other bells and whistles - like sneak,peek, etc.) the only two options are either his answer is right or his answer is wrong; and hence the probability of the right answer ($1 million) is 50%.
Once the result has been determined the probability is not defined - it becomes a past event so no more “probably outcomes” :)
Also, irrespective of how well you know a certain subject - the host can throw really obscure question at you - the probability that the host will choose a question you know is tending to zero and yet the probability that you answer the question right is 50% (based on two outcomes - right or wrong). I am sure it’s much more complicated than that (considering all the possible wrong answers one can give) but that’s as much as I am willing to stretch it. :)
It’s a bit easier to calculate in case of a multiple choice type questions.
The Digerati Life: Good luck on the faking part - I am sure they will ask your neighbors and your fellow bloggers before they pick you up ;)
The dude perhaps will laugh it off after many years - but if he is married, his wife is going to make him regret it till the end of time.
MoneyNing
Jun 8th, 2007 at 7:16 pm
He might have got to the 1 million dollar question just because he took risks to get there.
So, we shouldn’t really judge him just by the last question.
tanyetta
Jun 8th, 2007 at 9:07 pm
i would love the opp to decide to take $500K or risk it all. :)
i had to stop watching deal or no deal. i found myself yelling at the tv. i honestly could NOT understand people who would take such chances.
once it hits 6 figures, i’m outta there. period. guess that’s why i’ve never been chosen to go on those shows! I’m too broke to take chances like that