Hostname: page-component-7b9c58cd5d-sk4tg Total loading time: 0 Render date: 2025-03-17T06:29:10.677Z Has data issue: false hasContentIssue false
  • English
  • Français

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 ,
Raphael Flepp  and
Egon Franck
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
*
maximilian.ruedisser@business.uzh.ch
Get access Rights & Permissions [Opens in a new window]

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 effectDecision makingField experimentCasino gambling

JEL classification

C93: Field Experiments D81: Criteria for Decision-Making under Risk and Uncertainty D80: General
Type
Original Paper
Information
Experimental Economics , Volume 20 , Issue 3 , September 2017 , pp. 736 - 754
Copyright
Copyright © 2016 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ackert, L, Charupat, N, Church, BK, & Deaves, R (2006). An experimental examination of the house money effect in a multi-period setting. Experimental Economics, 9(1), 5–16. 10.1007/s10683-006-1467-1CrossRefGoogle Scholar
Aloysius, JA (2003). Rational escalation of costs by playing a sequence of unfavorable gambles: The martingale. Journal of Economic Behavior & Organization, 51(1), 111–129. 10.1016/S0167-2681(02)00134-8CrossRefGoogle Scholar
American Gaming Association. (2013). State of the states: The AGA survey of casino entertainment, Washington, DC: American Gaming Association.Google Scholar
Arkes, HR, & Blumer, C (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124–140. 10.1016/0749-5978(85)90049-4CrossRefGoogle Scholar
Arkes, HR, Joyner, C, Pezzo, M, Nash, JG, Siegel-Jacobs, K, & Stone, E (1994). The psychology of windfall gains. Organizational Behavior and Human Decision Processes, 59(3), 331–347. 10.1006/obhd.1994.1063CrossRefGoogle Scholar
Barberis, N (2012). A model of casino gambling. Management Science, 58(1), 35–51. 10.1287/mnsc.1110.1435CrossRefGoogle Scholar
Battalio, R, Kagel, J, & Jiranyakul, K (1990). Testing between alternative models of choice under uncertainty: Some initial results. Journal of Risk and Uncertainty, 3(1), 25–50. 10.1007/BF00213259CrossRefGoogle Scholar
Beltramini, RF (2000). Exploring the effectiveness of business gifts: Replication and extension. Journal of Advertising, 29(2), 75–78. 10.1080/00913367.2000.10673610CrossRefGoogle Scholar
Cárdenas, JC, De Roux, N, Jaramillo, CR, & Martinez, LR (2014). Is it my money or not? An experiment on risk aversion and the house-money effect. Experimental Economics, 17(1), 47–60. 10.1007/s10683-013-9356-xCrossRefGoogle Scholar
Chau, A, & Phillips, J (1995). Effects of perceived control upon wagering and attributions in computer blackjack. The Journal of General Psychology, 122(3), 253–269. 10.1080/00221309.1995.9921237CrossRefGoogle Scholar
Cherry, TL, Kroll, S, & Shogren, JF (2005). The impact of endowment heterogeneity and origin on public good contributions: Evidence from the lab. Journal of Economic Behavior & Organization, 57(3), 357–365. 10.1016/j.jebo.2003.11.010CrossRefGoogle Scholar
Clark, J (2002). House money effects in public good experiments. Experimental Economics, 5(3), 223–231. 10.1023/A:1020832203804CrossRefGoogle Scholar
Croson, R, & Sundali, J (2005). The gambler’s fallacy and the hot hand: Empirical data from casinos. The Journal of Risk and Uncertainty, 30(3), 195–209. 10.1007/s11166-005-1153-2CrossRefGoogle Scholar
Etchart-Vincent, N, & l’Haridon, O (2011). Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses. Journal of Risk and Uncertainty, 42(1), 61–83. 10.1007/s11166-010-9110-0CrossRefGoogle Scholar
Falk, A (2007). Gift exchange in the field. Econometrica, 75(5), 1501–1511. 10.1111/j.1468-0262.2007.00800.xCrossRefGoogle Scholar
Frino, A, Grant, J, & Johnstone, D (2008). The house money effect and local traders on the Sydney Futures Exchange. Pacific-Basin Finance Journal, 16(1), 8–25. 10.1016/j.pacfin.2007.04.002CrossRefGoogle Scholar
Gärling, T, & Romanus, J (1997). Integration and segregation of prior outcomes in risky decisions. Scandinavian Journal of Psychology, 38(4), 289–296. 10.1111/1467-9450.00038CrossRefGoogle Scholar
Gertner, R (1993). Game shows and economic behavior: Risk-taking on “Card Sharks”. The Quarterly Journal of Economics, 108(2), 507–521. 10.2307/2118342CrossRefGoogle Scholar
Gneezy, U, & Potters, J (1997). An experiment on risk taking and evaluation periods. The Quarterly Journal of Economics, 112(2), 631–645. 10.1162/003355397555217CrossRefGoogle Scholar
Haigh, MS, & List, JA (2005). Do professional traders exhibit myopic loss aversion? An experimental analysis. The Journal of Finance, 60(1), 523–534. 10.1111/j.1540-6261.2005.00737.xCrossRefGoogle Scholar
Haisley, E, & Loewenstein, G (2011). It’s not what you get but when you get it: The effect of gift sequence on deposit balances and customer sentiment in a commercial bank. Journal of Marketing Research, 48(1), 103–115. 10.1509/jmkr.48.1.103CrossRefGoogle Scholar
Harrison, GW (2007). House money effects in public good experiments: Comment. Experimental Economics, 10(4), 429–437. 10.1007/s10683-006-9145-xCrossRefGoogle Scholar
Houser, D, & Xiao, E (2015). House money effects on trust and reciprocity. Public Choice, 163(1–2), 187–199. 10.1007/s11127-014-0218-7CrossRefGoogle Scholar
Hsu, YL, & Chow, EH (2013). The house money effect on investment risk taking: Evidence from Taiwan. Pacific-Basin Finance Journal, 21(1), 1102–1115. 10.1016/j.pacfin.2012.08.005CrossRefGoogle Scholar
Kahneman, D, & Tversky, A (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292. 10.2307/1914185CrossRefGoogle Scholar
Keasey, K, & Moon, P (1996). Gambling with the house money in capital expenditure decisions: An experimental analysis. Economics Letters, 50(1), 105–110. 10.1016/0165-1765(95)00726-1CrossRefGoogle Scholar
McGlothin, W (1956). Stability of choices among uncertain alternatives. The American Journal of Psychology, 69(4), 604–615. 10.2307/1419083CrossRefGoogle Scholar
Meyer, G (2009). Problem gambling in Europe: Challenges, prevention, and interventions, New York: Springer.Google Scholar
Narayanan, S, & Manchanda, P (2012). An empirical analysis of individual level casino gambling behavior. Quantitative Marketing and Economics, 10(1), 27–62. 10.1007/s11129-011-9110-7CrossRefGoogle Scholar
Peng, J, Miao, D, & Xiao, W (2013). Why are gainers more risk seeking. Judgment and Decision Making, 8(2), 150–160.CrossRefGoogle Scholar
Rabin, M (2002). Inference by believers in the law of small numbers. Quarterly Journal of Economics, 117(3), 775–816. 10.1162/003355302760193896CrossRefGoogle Scholar
Staw, BM (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16(1), 27–44. 10.1016/0030-5073(76)90005-2CrossRefGoogle Scholar
Thaler, RH, & Johnson, EJ (1990). Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Management Science, 36(6), 643–660. 10.1287/mnsc.36.6.643CrossRefGoogle Scholar
Tversky, A, & Kahneman, D (1981). The framing of decisions and the psychology of choice. Science, 211(5), 453–458. 10.1126/science.7455683CrossRefGoogle ScholarPubMed
Weber, M, & Zuchel, H (2005). How do prior outcomes affect risk attitude? Comparing escalation of commitment and the house-money effect. Decision Analysis, 2(1), 30–43. 10.1287/deca.1050.0034CrossRefGoogle Scholar
Whyte, G (1986). Escalating commitment to a course of action: A reinterpretation. Academy of Management Review, 11(2), 311–321.CrossRefGoogle Scholar
Whyte, G (1993). Escalating commitment in individual and group decision making: A prospect theory approach. Organizational Behavior and Human Decision Processes, 54(3), 430–455. 10.1006/obhd.1993.1018CrossRefGoogle Scholar