Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice
Richard Thaler and
Eric J. Johnson
Additional contact information
Eric J. Johnson: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6371
Management Science, 1990, vol. 36, issue 6, 643-660
How is risk-taking affected by prior gains and losses? While normative theory implores decision makers to only consider incremental outcomes, real decision makers are influenced by prior outcomes. We first consider how prior outcomes are combined with the potential payoffs offered by current choices. We propose an editing rule to describe how decision makers frame such problems. We also present data from real money experiments supporting a "house money effect" (increased risk seeking in the presence of a prior gain) and "break-even effects" (in the presence of prior losses, outcomes which offer a chance to break even are especially attractive).
Keywords: decision making; prospect theory; sunk costs; mental accounting (search for similar items in EconPapers)
References: Add references at CitEc
Citations View citations in EconPapers (393) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:36:y:1990:i:6:p:643-660
Access Statistics for this article
More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Mirko Janc ().