An experimental examination of the house money effect in a multi-period setting
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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.
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- An experimental examination of the house money effect in a multi-period setting
Volume 9, Issue 1 , pp 5-16
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- Kluwer Academic Publishers
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- House money
- Prospect theory
- Industry Sectors
- Author Affiliations
- 1. Department of Economics and Finance, Michael J. Coles College of Business, Kennesaw State University, Kennesaw, Georgia, 30144
- 2. Research Department, Federal Reserve Bank of Atlanta, Atlanta, Georgia, 30309-4470
- 3. Michael G. DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada, L8S 4M4
- 4. Georgia Tech, College of Management, Atlanta, Georgia, 30332-0520