Misperceptions of probabilities is one the human limitations that behavioral economists examine. One of the most famous examples is the Monty Hall problem, named after Monty Hall the original host of Let’s Make a Deal. On the show Monty Hall would show the final contestant three doors and ask them to choose one. Then he would reveal a “goat” behind one of the doors the contestant did not choose. At that point, he’d then ask the contestant if they would like to switch doors. The contestant should since this gives them a 2/3rd chance of winning the grand prize but most don’t switch because they don’t want to regret the switch if it turns out that their first choice of doors is the winner. Regret is an important behavioral concept that causes people to make choices that fail to maximize the expected value of probability distributions. There is also a wonderful scene in 21 that explains the problem superbly:
Course Used: Principles of Micro
Quiz Nature: Discussion Starter
Question Length: 2
Estimated Time to Play: 5-8 with explanation of the mathematics.
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