MrBeast's Economics Homework

MrBeast is great for teaching economics. In fact,

Jadrian Wooten

has a paper in the Journal of Economics Teaching on principles you can teach from MrBeast videos.

In his Amazon Prime show, MrBeast offers a deal where we can use economics to calculate parameters in a utility function and predict outcomes on the show. It works perfectly!

The basic question is: what set of risk parameters p, assuming a utility function of

\(u(x) = x^p\)

rationalize the choice made at Episode 9.

I walk through the calculations in this video. And if you scroll down on this post, for those who want spoilers on Episode 10, I include a follow up question.

Spoilers below

Seriously

If you don’t want episode 10 spoiled, don’t read the question below.

QUESTION

Given that we calculated Gage’s risk parameter as 1.23, what was the minimum probability he expected his name to be on the card to accept a guaranteed payout of $1 million instead of opening the card to see if he’d advance to win $10 million.

Hint on calculating: if he’s the final two, then there’s a 50% chance he wins. So there was a X% chance he thought his name was on the card, and a 100-X% chance he thought he was safe. So his chance of winning the final prize is (100-X%)*50%.

Comment your answer!