Why Someone Should Not Take That Deal


My commenters, thank them, quite nicely outlined the major reasons that someone in the Deal or No Deal problem I posited would be wiser to take the Banker’s offer of a sure $11,750 rather than to keep a randomly selected one of $1, $10, $7,500, $25,000, or $35,000. Even though the expectation value, the average that the Contestant could expect from sticking with her suitcase if she played the game an enormous number of times is $13,502.20, fairly noticeably larger than the Banker’s offer, she is just playing the game the once. She’s more likely to do worse than the Banker’s offer, and is as likely to do much worse — $1 or $10 — rather than do any better.

If we suppose the contestant’s objective is to get as much money as possible from playing, her strategy is different if she plays just the once versus if she plays unlimitedly many times. I don’t know a name for this class of problems; maybe we can dub it the “lottery paradox”. It’s not rare for a lottery jackpot to rise high enough that the expected value of one’s winnings are more than the ticket price, which is typically when I’ll bother to buy one (well, two), but I know it’s effectively certain that all I’ll get from the purchase is one (well, two) dollars poorer.

It also strikes me that I have the article subjects for this and the previous entry reversed. Too bad.

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