Every one decision made in our life have dose of risk. There is a tendency in human behaviour to be either risk-seeking, or either risk-averse; to overweight the probabilities, whether small one or large one. To make decisions faced of risk, in fact placed decision-makers is an aspect of prospect theory, while they have framed already some expectations. Deal or No Deal, is popular television game show in United Kingdom, which data we will utilize to explore whether the real and high stakes have changed the reference point and whether is variable the risk aversion. The prospect theory proposed by Kahneman and Tversky cover the offers and remarks of model, which is alternative. The main concept in the sciences of decision is risk preferences, which usefully explore making decisions under uncertainty and risk.

CHAPTER 1

Introduction

The uncertainty and risk have significant role not only in important economic decisions, but also in our everyday life. The way when we take decisions is different when involve uncertainty or risk. Risk as a risk itself cannot be exactly specified, but could be defined in terms of uncertainty, too. If we have formula to measure could be much easier, but we cannot predict the future. Nature of human is to be uncertain in the decisions. The risk is everywhere around us, risk is to cross the street on red led, which can lead to car accident, but that is human sense. Most of our decisions we think are rational, but sometimes there are irrationals, that is because the human behaviour is unpredictable. The possibility of given activity or action will lead to a loss is risk. It implies that the existence of possible income have influence over our choices. Risk is carried by every human endeavour, some are less risky, some not.

This paper will look into different literature (journal, articles and books) to find more about perspective of behavioural finance; will explore the United Kingdom version of Deal or No Deal. It is convenient to study the risk decision-making of high-stakes, which involve real people and real situations. In the context of prospect theory, whether risk aversion is affected by decision frame.

Behavioural finance represents collection of explanations and theories of making financial activity and decisions, which are based on phenomena and concepts of psychology. It examines the factors, sociological and psychological, which influence decision making. The beliefs and preferences are the two typically broad psychology aspects.

There are plenty of previous literatures, which prove and show how people are susceptible of regular aptitude about future uncertain expectation of outcome and their beliefs. Kahneman, D. and Tversky, A. (March, 1979) have the concepts of behavioural representativeness and the anchoring.

In this paper we will have a look into how risky we are, how the risk affects us to make a decision and what change them; what influence have the risk to our decisions. Risk is determinative factor for taking decisions. Among the risk we can separate into three categories of basic behaviours risk preferences – risk neutral, risk seeking and risk averse. Those categories specify the level of risk, which is generally acceptable. Risk is variable, because of the expected return; it is chance to win or loss. The higher return is in the base of risk-seeking. There are likely to take riskier decisions with expected high return. Risk neutral people look over the risk, because they are concern about the return. Risk-averse people dislike risk; prefer the safe, lower return. If they have two opportunities with expected return, which is similar (but different risks), will prefer the lower risk one.

When there is loss, people tend to be risk-seeking, and then they prefer to risk more than moderate, so in case of win can cover the loss. That is the way how gamblers get addicted. They continue to gambling once they lose, to avoid the loss. Therefore, if it comes to gains, they try to avoid risk, because once they have something do not want to lose it. It is much easier to play with someone else’s money. Once you are chosen to play Deal or No Deal you do not have what to lose, so the contestants take more risky decisions. Two important words are gathered in this game – risk and luck, due to the potential of winning large amount, which could change your life. Real game, real people, real decisions … they made the game more interesting as case study for exploring.

Deal or No Deal (DOND) game began originally in 2002 in Netherlands and was the first game with no question (except one – Deal or No Deal?), game where no knowledge or extra skills are need. On 31st October 2005 started in United Kingdom and until today this game is played in more than 66 countries around the world (Endemol, 2011). This game show is mainly used to examining people’s behaviour, which are forced to make uncertainty decisions, because of the high stakes. The degree of risk aversion in Deal or No Deal depends on how during the game contestant is an affected prior loss. There are very large possibilities of winning high amount. This game show in fact is convenient for examination of decision making risky high-stakes, which involved real people.

To understand the subject of the research I will introduce the game rules of Deal or No Deal. There is no knowledge need to know how to play and there are no good or bad decisions. No one game play is the same order as other, neither with the same result – everything is individual. The rules are one for all contestants.

The game consists of 22 boxes and 22 contestants. Only independent adjudicator knows the amounts in every box. On random walk it is chosen one contestant to play, either for East or West Wing. The game can go up to 7 rounds, where the 7th round is final, but occasionally may have additional round. In the first round five boxes are open, then banker offer cash amount for the contestant’s box and the question Deal or No Deal? Waiting for respond – accept or not from contestant and continue with the game, because he need to choose between known amount (banker’s offer) and unknown one – its box. Therefore, in between rounds two to six are opened 3 boxes in each round. After the opening of every three boxes follow banker offer, and the question Deal or No Deal. If they player accept the banker’s offer, the game do not finish – continue the same order of how he would play, but if he decline – continue until in the game remain only two boxes. Then Banker will give his final offer, and even then if the contestant reject, the banker may offer it to swap the boxes, so finally player can see did he make good deal. Next two tables are to provide clear idea of all amounts in the boxes and how the game runs.

Table 1: All 22 amounts in the boxes

1p

£1,000

10p

£3,000

50p

£5,000

£1