My high school friend was recently a contestant on NBC’s game show “Deal or No Deal.” As any responsible engineering-student friend would do, I asked her (after they already filmed her episode) if she researched the game theory involved. Her response was had something to do with makeup and interviews, and boiled down to “no”.

Searching for “Deal or No Deal Game Theory” yielded some interesting literature, one of which came from the Wallstreet Journal.

For those of you who have not had the pleasure to witness an episode of Deal or No Deal, the way it works is there are 26 closed briefcases, each holding a distinct dollar amount from $0.01 to $1,000,000. The contestant chooses a case which remains closed until the end of the game. He/she then opens the remaining briefcases, one by one, narrowing the possibilities of what could be in his/her chosen case. Periodically, “the banker” will make the contestant an offer, based on the expected value of the contestant’s case given the already-revealed values (”deal”), or continue to open cases (”no deal”).

The data from Deal or No Deal is more valuable than other game shows because of its simplicity. Contestants are making the choice between calculated odds and a guaranteed payoff. As the article states, “there’s no trivia. No vowels to buy, no wheels to spin.” The players’ decisions are directly motivated by their immediate payoffs.

Thierry Post, a professor of finance at Erasmus University in Rotterdam, the Netherlands, studied 53 episodes of Deal or No Deal and found evidence to support prospect theory as it relates to risk aversion. Findings which shed light on human behavior in high stakes decision making can be used to tweak financial portfolio strategies.

While this article only addresses the contestants’ behavior in the game, there is other literature which discusses the “banker’s” offer strategy, which is arguably just as interesting.