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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


Ask the Geek: Deal or No Deal

Q. Can you help me win on that Deal or No Deal show?

A. Yes, if winning means maximizing the amount of money you take home, not picking the right suitcases.

Here is my advice: 

Forget about winning the million dollars. The odds say it just won’t happen. The object of the game should be to beat the mysterious Banker, not win the million dollars. To do that, you need to think in terms of expected value.

It makes no difference which suitcase you pick. Each has the same probability of having any one particular number in it. As a contestant, then, you should add up all the dollar amounts on the board at any time and divide by the number of choices left…or in other words, take the average.

The Banker is doing the same thing – figuring out the expected value (or in this case, the average) of all the choices left and then coming up with a number that is higher or lower than that value. If the number he offers to pay you is higher than the expected value (or average) of all the numbers you computed on the board, then you should take his offer. If not, keep playing.

Most people on the show are playing the wrong game – trying to win the million dollars. It’s not going to happen. Beating the Banker is the best you can do.

Try to figure out those expected values the next time you’re watching. You might be surprised how quickly you get the hang of it.

E-mail me if you have a question.