Banker and contestant attitude towards risk

Reference no: EM132461976

On the game show "Deal or No Deal", contestants pick one of 26 briefcases that contain values between 1 cent to 1 million dollars. Each round, the contestant eliminates one or multiple of the briefcases he or she did not not choose as their briefcase, hence getting a better idea what could be in their chosen case. For example, if they open the suitcase with 1 cent - great! They did not pick the one with 1 cent in it. Opening suitcases with large amounts on the other hand is disappointing for the contestant. Periodically, they receive a cash offer from "the banker", which they can take in exchange for their suitcase. If they do not take the offer, the game continues.

A contestant receives the final offer from the banker of $416K. Only the contestant's suitcase and one other suitcase remain unopened and they contain the maximum and minimum amounts possible, 1 cent and 1 million dollars. The contestant opts to deny the bankers offer and open his own case, which unfortunately has $1. Please answer the following questions:

1. What can you say about the banker's and contestant's attitude towards risk?

2. How much would the banker have to offer you to take the deal? Do you think you are more or less risk averse than the contestant? Use calculations to support your answer if possible.

Reference no: EM132461976

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