Planned versus Actual Betting in Sequential Gambles

Abstract:     
Anecdotal evidence suggests that in a gambling environment consumers may end up betting more than they had initially planned. The authors assess this phenomenon in a series of three experiments, where people are exposed to sequential and fair gambles in a two-stage process (planned and actual bets). The results show that in the planning phase, people behave conservatively, betting on average less after an anticipated loss and the same amount after an anticipated gain. However, after experiencing an actual loss in the first gamble, individuals in a subsequent gamble bet significantly more than what they had initially planned, whereas on average no differences from the plan are perceived after an actual gain. The reason for such asymmetry is in part due to people's tendency to underestimate, at the planning phase of the gamble, the impact of negative emotions in betting decisions during the actual phase of the gamble.

Number of Pages in PDF File: 46

Keywords: emotions, feelings, empathy gap, gambling, risk taking, reference point

JEL Classification: M31

Accepted Paper Series