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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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Listed:
  • Maximilian Rüdisser

    () (Department of Business Administration, University of Zurich)

  • Raphael Flepp

    () (Department of Business Administration, University of Zurich)

  • Egon Franck

    () (Department of Business Administration, University of Zurich)

Abstract

In order to promote risky behavior, it is a common practice that casinos incentivize their customers through the provision of free financial means, i.e., free play. Thereby, casino operators try to exploit what is known as the house money effect. However, evidence from the field is scarce and prior research provides explanations that predict different behavioral outcomes. This experimental study analyzes the gambling behavior of 765 casino customers and finds that incentivized customers show not higher but significantly lower levels of riskseeking behavior, expressed through lower wagers per game and overall smaller losses. This study thus provides evidence against the existence of a house money effect.

Suggested Citation

  • Maximilian Rüdisser & Raphael Flepp & Egon Franck, 2015. " Do Casinos Pay their Customers to Become Risk-averse? Revising the House Money Effect in a Field Experiment," Working Papers 360, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:zrh:wpaper:360
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    Cited by:

    1. 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).

    More about this item

    Keywords

    House money effect; Prospect theory; 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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