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Why are gainers more risk seeking

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  • Jiaxi Peng
  • Danmin Miao
  • Wei Xiao

Abstract

The phenomenon that prior gains may increase people's willingness to accept risky gambles is named as the "house money effect" (Thaler and Johnson, 1990). Many studies have shown that the "house money effect" is a robust phenomenon but few scholars explain the mechanism of it well. We suppose the reason for the house money effect is that the ante (starting amount) is from the prior gambling profits, and its potential loss has relatively low psychological value. To test this hypothesis, we designed a series of studies using two-stage gambles. A total of 915 university students participated. In Study 1, in addition to a standard condition (which replicated the basic effect), we test how people respond to ``prospect theory, with memory'' frame, a ``concreteness'' frame and ``quasi-hedonic'' editing. None of these types of frames result in a significant house money effect. In Study 2, we certify the reference point shift to 100 Yuan in the second-stage gamble, thus the house money effect can be regarded as the absence of loss aversion; Study 3, consisting of 3 sub-experiments, indicated that gambling profits and normal income will open different mental accounts which are spent quite differently. The pain of losing 100 Yuan allowance is more serious than that of losing 100 Yuan gambling wins. People will typically reject the gamble of 50/50 chance to gain or lose 100 Yuan if the ante is from the ``normal income account'', but accept if the ante is from the ``windfall account''. The results of the series of experiments prove the accuracy of our hypothesis mostly.

Suggested Citation

  • Jiaxi Peng & Danmin Miao & Wei Xiao, 2013. "Why are gainers more risk seeking," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(2), pages 150-160, March.
  • Handle: RePEc:jdm:journl:v:8:y:2013:i:2:p:150-160
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yuwen Peng & Chao Mao, 2015. "The Impact of Person–Job Fit on Job Satisfaction: The Mediator Role of Self Efficacy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 121(3), pages 805-813, April.
    2. repec:kap:expeco:v:20:y:2017:i:3:d:10.1007_s10683-016-9509-9 is not listed on IDEAS
    3. Pengyuan Wang & Jinyan Sang & Ping Li & Jian Zhao, 2016. "How to Make a Newcomer Happy? The Mediating Role of Career Commitment on the Relationship Between Unmet Expectations and Job Satisfaction," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(1), pages 401-412, May.
    4. Maximilian Rüdisser & Raphael Flepp & Egon Franck, 2017. "Do casinos pay their customers to become risk-averse? Revising the house money effect in a field experiment," Experimental Economics, Springer;Economic Science Association, vol. 20(3), pages 736-754, September.
    5. Fei He & Hao Guan & Yi Kong & Rong Cao & Jiaxi Peng, 2014. "Some Individual Differences Influencing the Propensity to Happiness: Insights from Behavioral Economics," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 119(2), pages 897-908, November.
    6. Xiaobo Yu & Pengyuan Wang & Xuesong Zhai & Hong Dai & Qun Yang, 2015. "The Effect of Work Stress on Job Burnout Among Teachers: The Mediating Role of Self-efficacy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 122(3), pages 701-708, July.
    7. Maximilian Rüdisser & Raphael Flepp & Egon Franck, 2017. " When do reference points update? A field analysis of the effect of prior gains and losses on risk-taking over time," Working Papers 369, University of Zurich, Department of Business Administration (IBW).

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