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An experimental examination of the house money effect in a multi-period setting

Published online by Cambridge University Press:  14 March 2025

Lucy F. Ackert ,
Narat Charupat ,
Bryan K. Church  and
Richard Deaves
Lucy F. Ackert*
Affiliation:
Department of Economics and Finance, Michael J. Coles College of Business, Kennesaw State University, Kennesaw, Georgia 30144; Research Department, Federal Reserve Bank of Atlanta, Atlanta, Georgia 30309-4470
Narat Charupat*
Affiliation:
Michael G. DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4
Bryan K. Church*
Affiliation:
College of Management, Georgia Tech, Atlanta, Georgia 30332-0520
Richard Deaves*
Affiliation:
Michael G. DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4
*
e-mail: lackert@kennesaw.edu
e-mail: charupat@mcmail.cis.mcmaster.ca
e-mail: bryan.church@mgt.gatech.edu
e-mail: deavesr@mcmaster.ca
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Abstract

There is evidence that risk-taking behavior is influenced by prior monetary gains and losses. When endowed with house money, people become more risk taking. This paper is the first to report a house money effect in a dynamic, financial setting. Using an experimental method, we compare market outcomes across sessions that differ in the level of cash endowment (low and high). Our experimental results provide support for a house money effect. Traders’ bids, price predictions, and market prices are influenced by the amount of money that is provided prior to trading. However, dynamic behavior is difficult to interpret due to conflicting influences.

Keywords

House moneyProspect theory

JEL classification

C91: Laboratory, Individual Behavior C92: Laboratory, Group Behavior D80: General
Type
Research Article
Information
Experimental Economics , Volume 9 , Issue 1 , April 2006 , pp. 5 - 16
Copyright
Copyright © 2006 Economic Science Association

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Footnotes

*

The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

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