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Why are gainers more risk seeking

Listed author(s):
  • Jiaxi Peng
  • Danmin Miao
  • Wei Xiao
Registered author(s):

    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.

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    Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

    Volume (Year): 8 (2013)
    Issue (Month): 2 (March)
    Pages: 150-160

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    Handle: RePEc:jdm:journl:v:8:y:2013:i:2:p:150-160
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