An experimental examination of the house money effect in a multi-period setting |
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Authors: | Lucy F Ackert Narat Charupat Bryan K Church Richard Deaves |
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Institution: | (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 |
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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.
JEL Classification C91 · C92 · D80
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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Keywords: | House money Prospect theory |
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