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Archive for January 1st, 2006

Deal or No Deal

So much of decision science has been developed around game shows (remember the Monty Halls problem you studied in statistic?). There is one recently being aired on CNBC called “deal or no deal”. Here’s an excerpt from wikipedia

The game start with 26 cases, each containing a differennt amount of money from a known list. Initially, the contestant get to pick one case to keep. After picking his/her case, the contestant then selects six of the remaining 25 cases to reveal, one at a time. Once revealed, the specific amount in that case is “out of play” (since it must not have been in the chosen case). This is followed by a “phone call” by The Banker, who makes an offer to buy the contestant’s case for a certain amount, based on the cash amounts still in play. If the contestant accepts the buyout, he/she must lift a cover and press a button to confirm the decision. The game then ends, and the contents of his/her case are revealed (along with the whereabouts of the top remaining prizes).

Should the contestant refuse the offer (“No deal!”), he/she then must choose five of the remaining cases to eliminate from consideration. Another deal with The Banker is made, and play continues as before. Subsequent rounds have the contestant withdrawing four, three, and two cases from play; should the contestant continue to decline The Banker’s offer after this point, he/she then eliminates one case each time until there are two cases remaining. If the player does not accept the final offer, the host offers the contestant one opportunity to switch his/her case with the one remaining in the gallery. After the decision is made, the contestant wins the cash amount contained inside the case he/she last kept.

It’s a simple probability problem, where the expected value, E(x), of the chosen case is the average of all the cases still in play. But what’s interesting is in the episodes that I watch, the offer is almost always lower than the expected value of the chosen case. What the game is also demonstrating is the risk premium a player is willing to pay (difference between offer and E(x)), and how recent event such as eliminating a big prize will affect such premium.

Another interesting behavior is “satisficing”. Supposed the contestant is left with $0.01 and $1M, and the outstanding offer is $200K? The expected value of the chosen case is slightly more than $500K. If the constestant play the game over and over again, it is to his advantage to play “no deal”. But in 1957, Herbert A. Simon’s nobel prize winning economic theory suggested that instead of finding the optimal choice, people often settle for an option that will satisfy their minimum requirement. This minimum requirement varied with time and events. Even tho the expected value of the case is slightly over $500K, most people will still walk home with $300K less than the expected value because of fear of missing out on the $200K being offered.

A very interesting game. Definitely worth watching at least once.

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A year of change

I got a christmas card from Edith. “It’s a year of change for both of us”, she said. She started her graduated study on architecture policy in London. Me? I left my job at Amazon and moved back to New York. Was it a good change?… I left some people I enjoyed working with. I left a few good friends. I left a job that will afford me a nice house in the suburb, two SUVs and a dog, which a lot of people in the country are working their life towards. Instead I opt for a chance to open up different doors to the different worlds that exist around me. I believe the random step that I take along the way will help me out later, either for my career or as a person. I carried out a job as a sales associate at Zales. I moved closer to my family, closer to a city that’s struggling to survive. I freed myself up for the opportunities that lies ahead.

I have no idea what it is, but change is always good. But not being afraid of change is even more important. My friends are still my friends. I am sure they will miss my cooking and come visit at some point ;) A few people whom I enjoyed working with has move on with their career, but I am sure we’ll cross path at some point. So far I am pretty glad I made my move.

As of now, I am working on my cover letter…

In Renaissance’s time, an engineer would earn his title by stepping up to a challenge; employing engineering disciplines to solve a problem that would benefits the greater community. Most of these problems were without precedence. To accomplish the job, an engineer not only has to process broad and deep technical knowledge in different fields, he also has to have the drive and determination to learn and solve every problem that arises along the way.

Such disciplines are still well alive today. Today, a “renaissance engineer” would master his or her skill through real world practices and experiences. To design an optimal solution, he or she must have a good understanding of economics and business realities of the problem. To lead a successful execution, he or she would need to have an appreciation for individual differences and have the ability to communicate with people with different background and skill sets.

These are the very qualities that allow me to carry my responsibility as an engineer. I enjoy the challenge of a dynamic environment, and will continue to leverage engineering disciplines to anticipate tomorrow’s problem.

What is your new year plan?

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