Tonight I had the pleasure of attending a viewing party for a friend (or better put the daughter-in-law of a great friend), Aubrey Wentworth, who was on the NBC Television Show Deal or No Deal. She and her twin sister may have set the record, I didn't check, for the least money won on the show: $6,000.
It was fun to watch with friends at Iggy's Sports Bar on all of their big screen TVs.
Of course, everyone began second guessing the strategy that led to their winning so little money. The fact is that they did the most rational thing they could at each decision point, but luck worked against them. The "offers" from the "banker" have almost no correlation to the theoretical expected value of the remaining options (Matt and I have both checked the math independently--what nerds!).
Afterward, my son Dayton made the most insightful comment I'd heard all night. The game, especially this outcome, proves the value of a portfolio. If you own just one stock, you could win really big. Stocks do move up without theoretical limits and there is no cap on how much you can win. But you can also lose it all.
Of course the odds of General Electric's stock going to zero apear infintesimally small now, but wouldn't we have said the same thing of General Motors 30 years ago. Today, with GM's stock languishing and the U.S. auto industry in real decline, it doesn't sound crazy at all.
Yet, a portfolio of stocks, over any long duration of time in the last hundred years, tends to grow.
The least amount I have seen won was $200. The banker's offer seemed to be the average of the possible outcomes available. So, add up what is still on the board and divide it by the number of cases left and you get the banker's offer. It's not exact but it's close. My favorite part of the show is guessing the offer amount.
Posted by: Steven Ting | March 23, 2007 11:15 AM | Permalink to Comment