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

Maximilian Rüdisser, Raphael Flepp and Egon Franck

Experimental Economics, 2017, vol. 20, issue 3, No 10, 736-754

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.

Keywords: House money effect; Decision making; Field experiment; Casino gambling (search for similar items in EconPapers)
JEL-codes: C93 D80 D81 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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Working Paper: Do Casinos Pay their Customers to Become Risk-averse? Revising the House Money Effect in a Field Experiment (2015)
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DOI: 10.1007/s10683-016-9509-9

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