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


Rüdisser, Maximilian Valentin; Flepp, Raphael; Franck, Egon (2015). Do casinos pay their customers to become risk-averse? Revising the house money effect in a natural experiment. Business Working Paper Series 360, University of Zurich.

Abstract

In order to promote risky behavior, it is a common practice that casinos incentivize their customers through the provision of free financial means, i.e., free play. Thereby, casino operators try to exploit what is known as the house money effect. However, evidence from the field is scarce and prior research provides explanations that predict different behavioral outcomes. This experimental study analyzes the gambling behavior of 765 casino customers and finds that incentivized customers show not higher but significantly lower levels of risk-seeking behavior, expressed through lower wagers per game and overall smaller losses. This study thus provides evidence against the existence of a house money effect.

In order to promote risky behavior, it is a common practice that casinos incentivize their customers through the provision of free financial means, i.e., free play. Thereby, casino operators try to exploit what is known as the house money effect. However, evidence from the field is scarce and prior research provides explanations that predict different behavioral outcomes. This experimental study analyzes the gambling behavior of 765 casino customers and finds that incentivized customers show not higher but significantly lower levels of risk-seeking behavior, expressed through lower wagers per game and overall smaller losses. This study thus provides evidence against the existence of a house money effect.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:House money effect, Prospect theory, Natural experiment, Casino gambling
Language:English
Date:7 December 2015
Deposited On:15 Dec 2015 13:54
Last Modified:05 Apr 2016 19:40
Series Name:Business Working Paper Series
Number of Pages:34
Free access at:Official URL. An embargo period may apply.
Official URL:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2700052
Other Identification Number:merlin-id:12783
Permanent URL: https://doi.org/10.5167/uzh-116531

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