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Do casinos pay their customers to become risk-averse? Revising the house money effect in a field experiment

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  • Maximilian Rüdisser

    () (University of Zurich)

  • Raphael Flepp

    (University of Zurich)

  • Egon Franck

    (University of Zurich)

Abstract

Abstract The house money effect predicts that individuals show increased risk-seeking behavior in the presence of prior windfall gains. Although the effect’s existence is widely accepted, experimental studies that compare individuals’ risk-taking behavior using house money to individuals’ risk-taking behavior using their own money produce contradictory results. This experimental field study analyzes the gambling behavior of 917 casino customers who face real losses. We find that customers who received free play at the entrance showed not higher but significantly lower levels of risk-taking behavior during their casino visit, expressed through lower average wagers. This study thus provides field evidence against the house money effect. Moreover, as a result of lower levels of risk seeking, endowed customers yield better economic results in the form of smaller own-money losses when leaving the casino.

Suggested Citation

  • 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.
  • Handle: RePEc:kap:expeco:v:20:y:2017:i:3:d:10.1007_s10683-016-9509-9
    DOI: 10.1007/s10683-016-9509-9
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    Citations

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    Cited by:

    1. Flepp, Raphael & Rüdisser, Maximilian, 2019. "Revisiting the house money effect in the field: Evidence from casino jackpots," Economics Letters, Elsevier, vol. 181(C), pages 146-148.
    2. 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).
    3. Philippe Meier & Raphael Flepp & Maximilian Rüdisser & Egon Franck, 2020. " The effect of paper versus realized losses on subsequent risk-taking: Field evidence from casino gambling," Working Papers 385, University of Zurich, Department of Business Administration (IBW).

    More about this item

    Keywords

    House money effect; Decision making; Field experiment; Casino gambling;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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