What Deal or No Deal Can Teach You About Financial Risk Management

Who would have thought that you could learn about financial risk management from watching a television game show? That’s right! Watching Deal or No Deal can actually help you make better investment decisions.

If you’ve ever watched the show, you’ll know that it’s about attempting to analyze the results of risk taking. There are numbered briefcases, each with a hidden dollar value. Each case you pick earns you the dollar value hidden inside.

In its simplest form, it’s a random system. But you’ve probably thought that you could figure out a pattern, right? Well, while you may have had some luck before, here are some key lessons that you can take away from the game.

1. Random systems aren’t predictable. Simply put, avoid using past activities in a random system to predict future movement. When you’re trying to decide which stock to buy, it’s almost useless looking at its past performance.

* An investment opportunity yielding a particular result in the past doesn’t make it predisposed to produce in the same way again.

* Avoid being deluded into thinking that you can see patterns of growth from past performance.

2. Panic clouds judgment. Have you made an investment that’s now giving you negative results? Have you played the stock market only to realize that it’s now on the decline? If you answered yes to either question, you’ve likely panicked at one point or another.

* The first lesson to learn is panic almost always clouds judgment. The minute you realize your investment is going sour, you lose your composure. Try to avoid this.

* With pending stock market declines, you may feel like you’re at a crossroads. You may want to get out because you don’t want to regret staying in. But allow yourself time to think it through. Determine which action can produce a result you can live with.

3. Fear of loss drives decision-making. The reality is that fear of loss is what pushes you to make a hasty decision. At least that’s usually the case with questionable investments.

* Because you fear what you might end up losing, you may end up opting out of your investment too soon. That may not be the best move. This is often the case with contestants on Deal or No Deal.

* Giving thought to what you’ve lost up to this point can make you feel you took too long to sell. But be fair to yourself. Risky investments are largely based on probability.

4. Dwindling options promote risk-taking. What the game show also shows is that as options dwindle, contestants become more risk-prone. Similarly, you could also be dwelling on past “losses” and that could affect rational assessment.

* Try to leave former investment experiences in the past. The same goes for past performance of current investments. Look at the current investment at face value.

* Determine if you’ll really be better off remaining in the game or pulling out with what you currently have.

So is Deal or No Deal just a game, or is it something that provides you with real lessons in financial risk-taking? It’s definitely a little bit of both. You learn a little from every experience!

Of course, it wouldn’t be a wise idea to use this game show as your guide to financial wellness! But there’s definitely no harm in using some of the examples to help in your decision-making. Learn these lessons, but seek the wisdom of the experts in your financial dealings as well.