Deal or No Deal? Decision Making under Risk in a Large-Stake TV Game Show and Related Experiments

The central theme of this dissertation is the analysis of risky choice. The first two chapters analyze the choice behavior of contestants in a TV game show named “Deal or No Deal” (DOND). DOND provides a unique opportunity to study risk behavior, because it is characterized by very large and wide-ranging stakes, by a simple probability distribution, and by stop-go decisions that require minimal skill or strategy. The first chapter analyzes individual editions from different countries. The results are hard to reconcile with expected utility theory and point to reference-dependent alternatives such as prospect theory. The choices of contestants can be explained in large part by previous outcomes experienced during the game. Risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes. The second chapter compares across editions. Risky choice turns out to be highly sensitive to the context, as defined by the initial prizes in the game. Even though the initial stakes of the various editions are widely different, contestants respond in a similar way to the stakes relative to their initial level. The third chapter of this thesis analyzes random task incentive systems (RTISs), using experiments that mimic DOND. RTISs are commonly applied in risky choice experiments to implement real incentives, especially when research budgets are limited and to avoid income effects. We find that caution is warranted when applying RTISs

Miljoenenjacht: voer voor economen

Onderzoek naar de risicohouding van deelnemers aan Miljoenenjacht laat zien dat ‘pech in het spel’ deelnemers minder gevoelig maakt voor risico’s. De echte pechvogels accepteren zelfs ‘oneerlijke’ kansspelen. Psychologie lijkt belangrijker te zijn dan veel economen denken

Deal or No Deal? Decision-making under Risk in a Large-payoff Game Show

The popular television game show deal or No Deal offers a unique opportunity for analyzing decision making under risk: it involves very large stakes, simple take-or-leave decisions that require minimal skill or strategy and near-certainty about the probability distribution. Based on a panel data set of the choices of contestants in all game rounds of 53 episodes from Australia and the Netherlands, we find an average Pratt-Arrow relative risk aversion (RRA) between roughly 1 and 2 for initial wealth levels between 0 and 50,000. The RRA differs substantially across the contestants and some even exhibit risk seeking behavior. The cross-sectional differences in RRA can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, consistent with the break-even effect,the RRA strongly decreases following earlier losses and risk seeking arises after large losses.To be published in American Economic Revie

Omineca Herald, March, 14, 1928

We conducted 46 interviews with CEOs and CFOs who were closely involved in an initial public offering (IPO) in the Netherlands. Among other things, we find that pre-existing relationships are a primary consideration in the selection of the lead manager and other syndicate members. Pre-marketing feedback figures prominently throughout the pricing process. The width of the price range of book-built IPOs is especially driven by valuation uncertainty. There is evidence of strategic underpricing in anticipation of subsequent equity issues and because of management’s interest in satisfying new shareholders. Many interviewees believe that the lead manager’s business interests have had a strong influence on the allocation of shares. Managerial perceptions of IPO success are largely driven by how well the firm fared in terms of stock price performance, changes in media attention and visibility, and changes related to the retention and recruitment of staff

Random incentive systems in a dynamic choice experiment

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects' error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks

A Critical Review of the Fair Value Settlement Procedure for Stock Options

We review the European practice of fair value settlement of stock options after a successful takeover bid. We argue on both fundamental and practical grounds that the inherent complexity, arbitrariness and inaccuracy of fair value calculations call for replacement by intrinsic value settlement. This alternative is simple, transparent, well-defined, and common practice at other exchanges

Company Name Fluency and Stock Returns

Recent research shows that stocks with fluent names trade at higher prices, but it is not clear whether fluency conveys information or simply appeals to unsophisticated investors. In this paper, we tease out these two hypotheses. We find that fluent stocks yield higher risk-adjusted returns than nonfluent ones, and that this difference increases with the size of noise trader demand. These results lend support to the information story, according to which fluency is only partly reflected in prices due to noise traders' inability to evaluate it. Our findings speak to a more general literature on the underpricing of intangibles