Question10 The “house money effect” refers to People’s tendencies to take on gambles they normally do not after prior losses to recoup their prior losses The reluctance to sell one’s house at a loss relative to the purchase price People’s tendencies to refuse gambles they normally do not after prior winning None of the above ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

The house‑money effect describes increased willingness to take risks with gains that people view as “free” or not their own—treating prior winnings as the casino’s money—so they become more risk‑seeking after prior gains.

1) Relevant knowledge points and concepts
- House‑money effect: people become more willing to gamble after prior gains because those gains are mentally labeled as separate from their original capital.  
- Break‑even or loss‑chasing behavior: risk‑seeking to recoup prior losses (different concept).  
- Disposition effect/loss aversion: reluctance to realize losses (different concept).  
- Prospect theory underlies these behaviors: gains and losses are evaluated relative to reference points, not absolute wealth.

2) Step‑by‑step reasoning
- Compare each choice to the standard definition: the house‑money effect implies greater risk‑taking after winning, not after losing and not reluctance to realize losses.  
- Option 1 states increased risk‑taking after prior losses to recoup losses: that describes loss‑chasing or the break‑even effect, not the house‑money effect. So Option 1 is incorrect.  
- Option 2 describes reluctance to sell one’s house at a loss relative to purchase price: that is an example of loss aversion/disposition effect, unrelated to treating gains as “house money.” So Option 2 is incorrect.  
- Option 3 claims people refuse gambles after prior winning: this is the opposite of the house‑money effect (it would describe increased risk aversion after winning), so Option 3 is incorrect.

3) Calculations: none required; reasoning is conceptual.

4) Why the correct answer is correct
- Since none of the three provided descriptions match the canonical definition (increased risk‑taking after prior wins), the only accurate choice is “None of the above.”

5) Why other options are incorrect (brief)
- Option 1: describes loss‑chasing, not house‑money.  
- Option 2: describes disposition effect/loss aversion.  
- Option 3: states the opposite behavior of the true house‑money effect.

6) Conclusion
- Therefore the correct selection is “None of the above,” which matches the provided answer.

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