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

Published online by Cambridge University Press:  14 March 2025

Maximilian Rüdisser*
Affiliation:
University of Zurich, Affolternstrasse 56, 8050 Zurich, Switzerland
Raphael Flepp
Affiliation:
University of Zurich, Affolternstrasse 56, 8050 Zurich, Switzerland
Egon Franck
Affiliation:
University of Zurich, Affolternstrasse 56, 8050 Zurich, Switzerland

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.

Type
Original Paper
Copyright
Copyright © 2016 Economic Science Association

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