The real “Deal or No Deal”
January 6, 2010 by Jack Marrion
- BY Jack Marrion
The popular game show “Deal or No Deal” has the contestant select one box out of 26 containing anywhere from a penny to a million dollars, and if still held at the end of the game the contestant receives the cash from that box. The game tells you what the contents of the boxes are, but not the location. The remaining boxes are gradually opened, showing what isn’t in the chosen box, and at stages along the way, the show’s banker will offer to buy the contestant’s box for an amount reflecting the odds of whether a high- or low-dollar amount remains in the box.
Toward the end of the show the remaining boxes might contain one with $500,000, another with $25,000 and three others with very small amounts. The banker might be offering the contestant $80,000 to quit now.
And host Howie Mandel is usually saying something like “you could take the $80,000 but that $500,000 is still in play; do you want to give up a possible $500,000 and take the $80,000 offer?”
Finding the risk
But the contestant’s choice is not about risking $80,000 to make $500,000. If a small number is picked the banker’s offer will go up to, maybe, $95,000, but if the half million is taken out, the banker’s offer may drop to $10,000.
The real risk of the situation is the contestant is risking $70,000 (the difference between the current offer and the offer if the $500,000 box is removed) to make $15,000 by picking a small number, which increases the bank’s offer from $80,000 to $95,000. Do you want to risk $70,000 to make $15,000? That’s the real deal.
The real deal
Too often consumers are faced with real-life “deal or no deal” decisions. The agent may be offering a yield of 4 percent for the next year. However the consumer is tempted by the investment siren talking about 10 percent and their song tempts him with the chance to make 10 percent.
But what the consumer is really being asked is whether he wants to risk 4 percent, 20 percent or even more for a chance to make 6 percent. If the siren is right the consumer makes only 6 percent more, but if wrong, the consumer not only could lose the 4 percent, but much of their principal as well.
Too often the possible gains of investments are compared with the gains of fixed annuities, but possible investment losses are ignored. Often an investment risks a dollar to maybe make a dime, and that’s no deal.
The popular game show “Deal or No Deal” has the contestant select one box out of 26 containing anywhere from a penny to a million dollars, and if still held at the end of the game the contestant receives the cash from that box. The game tells you what the contents of the boxes are, but not the location. The remaining boxes are gradually opened, showing what isn’t in the chosen box, and at stages along the way, the show’s banker will offer to buy the contestant’s box for an amount reflecting the odds of whether a high- or low-dollar amount remains in the box.
Toward the end of the show the remaining boxes might contain one with $500,000, another with $25,000 and three others with very small amounts. The banker might be offering the contestant $80,000 to quit now.
And host Howie Mandel is usually saying something like “you could take the $80,000 but that $500,000 is still in play; do you want to give up a possible $500,000 and take the $80,000 offer?”
Finding the risk
But the contestant’s choice is not about risking $80,000 to make $500,000. If a small number is picked the banker’s offer will go up to, maybe, $95,000, but if the half million is taken out, the banker’s offer may drop to $10,000.
The real risk of the situation is the contestant is risking $70,000 (the difference between the current offer and the offer if the $500,000 box is removed) to make $15,000 by picking a small number, which increases the bank’s offer from $80,000 to $95,000. Do you want to risk $70,000 to make $15,000? That’s the real deal.
The real deal
Too often consumers are faced with real-life “deal or no deal” decisions. The agent may be offering a yield of 4 percent for the next year. However the consumer is tempted by the investment siren talking about 10 percent and their song tempts him with the chance to make 10 percent.
But what the consumer is really being asked is whether he wants to risk 4 percent, 20 percent or even more for a chance to make 6 percent. If the siren is right the consumer makes only 6 percent more, but if wrong, the consumer not only could lose the 4 percent, but much of their principal as well.
Too often the possible gains of investments are compared with the gains of fixed annuities, but possible investment losses are ignored. Often an investment risks a dollar to maybe make a dime, and that’s no deal.
