Testing the House Money & Break Even Effects on Blackjack Players in Las Vegas

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Abstract/Contents

Abstract: Building on prospect theory, Thaler and Johnson (1990) observe two effects that govern decision-making under risk. The first effect is that in the presence of prior gains, individuals exhibit increased risk-seeking behaviour. They call this the “house money effect.” The second effect is that in the presence of prior losses, individuals favour scenarios that offer them the possibility of returning to their original level of wealth. They call this the “break even effect.” Their findings, however, were based on hypothetical surveys and small-scale laboratory experiments that lack the realism of decision-making in the real world. In this paper, I determine whether the house money and break even effects apply in a real-world context by observing blackjack players in various Las Vegas casinos and analysing the amount they bet when faced with prior gains and losses. Based on my observations, I find that both a house money effect and break even effect exist. The break even effect, however, is less economically significant and this can be attributed to limitations in my data.

Type of resource	text
Date created	May 2008

Author	Zhang, Zhihao
Primary advisor	Shotts, Kenneth
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	risky decision
Subject	gamble
Subject	multi-stage lottery
Subject	decision making under uncertainty
Genre	Thesis

Location	https://purl.stanford.edu/hs316gy2015

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Preferred Citation: Zhang, Zhihao. (2008). Testing the House Money & Break Even Effects on Blackjack Players in Las Vegas. Stanford Digital Repository. Available at: https://purl.stanford.edu/hs316gy2015

Stanford University, Department of Economics, Honors Theses

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