At the beginning of March Ukrainian television launched its version of the world-known show “Deal or No Deal.” Every person aged 18 and over who loves taking risks and has a well-developed intuition can take part and try to win one million hryvnias.
Before the launch of the Ukrainian version of Deal or No Deal, the Kyiv School of Economics, with The Day’s informational support, invited Dr. Thierry Post of Cass Business School, City University London, with the open academic lecture “Deal or No Deal? How players make risky decisions in a large-payoff game show.” This seasoned financier knows everything about the player’s mentality, not only in a game show, but also in the economic field. Proof of this is the following exclusive interview.
Dr. Post, a few words about your research, if you don’t mind.
“Under normal conditions it is difficult to carry out a controlled experiment involving investors and traders, whereas Deal or No Deal is a godsend for those who wish to study the players’ psychology. This game show is very convenient for investigative economists because this show is actually an experiment, and an expensive one at that; it’s something a researcher can’t do in a lab. Deal or No Deal is the most expensive show in history. In the Netherlands, for example, the winner gets five million euros.
“This show has several advantages for studying the players’ conduct: the sums of potential prizes are large, the rules of the game are clearly stated, and people find it hard to keep their emotions in check. Among other things, it allows to trace the players’ trend toward overestimating their chances of winning.
“Those who buy lottery tickets figure they stand one or even more percent of winning the game. In actuality, this chance is one-thousandth, even one-millionth percent, so buying this ticket is a waste of money. And yet people keep buying lottery tickets and feel sure they’ll win [one of these days]. This is the simplest example, for there are lots of other psychological effects. For example, people who buy insurance are actually playing that same lottery game. You can insure yourself against various troubles, but people who buy insurance are afraid of certain unfavorable occurrences and tend to overstate the risks involved. If you compare the risk-taking level of those who buy lottery tickets and insurance, you can say that the former are fond of taking risks and willing to do just that, whereas the latter want to insure themselves against even the least likely events.”
Players’ psychology is topical for Ukraine and Russia. First, gambling business was banned in both countries last year. Second, such financial tools as Forex, trading in stocks, and so on remain largely terra incognita for a man in the post-socialist street. Could you compare the Western European gamers’ psychology to that of the Ukrainian ones? What should the Ukrainians do to bring their financial psychology as close to the European one as possible? How much does one’s skill at playing games of chance influences social mentality and business prowess?
“It is hard to compare the conduct of Ukrainians and Europeans who play lottery games. In Ukraine life as such is a lottery game. Relying on my observations of Ukrainians, I can say that wealthy people riding expensive cars downtown and rudely violating traffic rules are very much on the risk-taking side. Statistically, an average Ukrainian male’s life span is 62-63 years. This is proof that Ukrainians neglect their health, which is a risk in itself.
“I guess a great many Ukrainians overstate the role of material values, social standing, costly limos, and pretty female escort. They believe that living in apartments on Khreshchatyk St. will essentially change their life, so they take risks to get all this.
“I would recommend the Ukrainians playing Forex that they stop, because this means taking unjustifiable risks rather than making investments. If I were given a choice, Forex would be at the bottom of the list. This is a highly competitive market involving commercial banks and investment funds with very good specialists on payroll, so an individual investor actually stands no chance of getting the better of these giants, except when having insider information from the head of the national bank. Expected dividends for an individual playing Forex are nil, unlike the securities market where such dividends are above zero.
Do you think banning gambling business was the right decision? In Ukraine, they keep using gambling machines illicitly. However, in case of mass unemployment, the excitement induced by playing games of chance could become a very big socioeconomic problem. Where is the golden mean?
“There are lots of people abroad who have problems with this kind of excitement. They have to be taught to avoid taking unreasonable and unprofitable risks and to adopt an investment kind of conduct that will bring them dividends.
“A normal individual will not take any unwarranted risks, especially when chances of winning are small. Inveterate gamblers more often than not turn out to have social and psychological problems. Statistically, 10 percent of the lowest-income Americans spend 40 percent of their income taking unreasonable risks, playing lottery, races, and so on, dreaming of the big win. Such people need medical attention.
“While combating the negative consequences of this kind of excitement, it is necessary to take care of financing the education system in the first place in order to help people learn more. Gambling business is just the tip of the iceberg. Ukraine is faced with fundamental problems, including social inequality, short life span, bad infrastructures, and so on. Hopefully, the new president and probably the new parliamentary coalition will succeed in solving these problems.”
How and where can your findings be used practically? In the investment sphere? Is it possible to forecast investors or traders’ conduct by using your discoveries?
“Knowledge of the so-called behavioral economics proves very useful in understanding investors’ conduct. Apart from mathematics and statistics, psychology also comes in handy in this sphere. The behavior of a rank-and-file investor is subject to psychological regularities; this investor makes decisions that can be subsequently described using the laws of psychology. An active investor can get small or big dividends by simply avoiding mistakes made by other investors.
“A number of my students have received their degrees specializing in game show statistics. They can make good money on these games. When playing a game of poker it is important to sense the other players’ emotions. A good player can determine who has a bad hand, predict that player’s conduct, and win the game.”
Do your students win such games?
“My students receive quality knowledge and are in constant market demand. They work out effective practical models that are used on the financial market. They don’t play lottery or other similar games. An individual with a good education knows that there are no prospects there.
“Getting back to practical use of this research, let’s take trading in shares, for example. Here good and bad news are extremely important; you can win by using the responses to them. For example, the market receives the bad news that Apple’s CEO Steve Jobs will soon be relieved of his post. A great many people will ignore this information simply because they love the company and its products. In the end the fundamental value of shares will decline noticeably, while the market value will register a slight drop. Most private investors won’t sell their Apple shares, while the investment funds manager, bound to make decisions relying on computations, regardless of his/her emotions, will see that the shares are losing their value. This manager will sell them, for this is the only dividend-bringing strategy.
“If there is good news that company shares are gaining in value, a lot of small-time investors will start selling shares to make sure they get their revenues. In such cases the fundamental value of shares starts climbing skyward, while the market value registers a slight increase. Investment funds are sure to make profit here, too.”
Does your investigative experience say that playing games of chance, like lottery, getting this kind of excitement, is good psychologically for a person who wants to make a successful entrepreneur? Or does it say that you can achieve prosperity by pursuing a strictly economic policy, with no room left for any such games?
“Taking risks without any prospects of gain makes no sense. If you want to make an investment, and if you lack financial training to trade in shares, the best option is to invest in education. Study languages, English or Chinese. You could also invest in real estate. Just think twice before investing in nonsensical projects like lottery or Forex. You might as well forget about investing in costly things, status objects that you can’t really afford. For example, an expensive limo will start losing its value with time, and you’ll be losing your money.”
