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Old 11-19-2007, 11:00 PM
JeffBship JeffBship is offline
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Join Date: Sep 2004
Location: Foxwoods ATM
Posts: 20
Default Re: DEAL or NO DEAL (TV Game Show) How Decide?

I don't think EV really comes into play here. EV is used to make decisions based on long term expectations where you are willing to accept some variance.

Imagine the scenario where you are given 5 million dollars, and you are offered a coin flip to either win 20 million or lose the 5 million. If you were Bill Gates, 50% chance to lose 5 million isn't such a huge deal to you. But if you are a Single mother with 10 kids on welfare...50% chance to lose 5 million is a huge risk. And keeping the 5 ensures you a happy life and the ability to care for your children, while increasing it to 20 million would only be marginally better...certainly not worth a 50% probability of losing everything.

It's "Risk of Ruin" that is the overriding factor here. Here's a nice explanation using poker as the example:
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