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# Monte Hall Paradox - PowerPoint PPT Presentation

Monte Hall Paradox. Famous game show from the 70's Problem: Three doors One prize (car), 2 goats You chose 1 door Monte Hall (host) opens a door with a goat Asks if you want to switch Should you switch?. Monty Hall Problem. 1 Car, 2 goats Choose door. 1. 2. 3. Monty Hall Problem.

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Presentation Transcript
• Famous game show from the 70's
• Problem:
• Three doors
• One prize (car), 2 goats
• You chose 1 door
• Monte Hall (host) opens a door with a goat
• Asks if you want to switch
• Should you switch?
Monty Hall Problem
• 1 Car, 2 goats
• Choose door

1

2

3

Monty Hall Problem
• Monty Hall reveals goat
• Asks if you want to switch
• What do you do?

1

2

3

Easier Monty Hall
• 1000 Doors, 1 car
• You chose 1
• Monty opens 998 goats
• Should you switch?
• Famous game show from the 70's
• Problem:
• Three doors
• One prize (car), 2 goats
• You chose 1 door
• Monte Hall (host) opens a door with a goat
• Asks if you want to switch
• Should you switch?
Monte Hall

1

3

2

Monte Hall

Goat!!

1

3

2

Should you switch?

Monte HallProbabilities

1

1/3

3

1/3

2

1/3

Monte HallProbabilities

1

3

1/3

2

2/3

Should you switch?

Yes

Two Final (difficult) Topics
• Time
• Chaos/complexity
Time
• Horizon
• Days, weeks, months, years
• Decisions
• How effected by new information
Complexity/connections
• Interconnection between different variables difficult to predict, control, or understand
• System failures
• May impact the correctness of our risk model
• Model risk
Behavioral Features
• Simple rules
• Probability/ambiguity
• Gambler’s fallacy
• Regret/loss aversion
• Overconfidence
• Under diversification
• Jam samples in supermarket
• Consumers sample jam
• Case 1: 6 jams
• 30 percent redeem coupons
• Case 2: 26 jams
• 3 percent redeem coupons
• Decision makers have lots of information
• Need to decide what is relevant
• Emergent patterns on irrelevant information
• Sunspots