Recently, a neighbor you have known for years won a lottery and received a $250,000 prize. This neighbor decided to invest all of his winnings in a new business venture that he knew only had a 5 percent chance of success. Previous to this, the neighbor had always been ultra conservative with his money and had refused to invest in this business venture as recently as last week. Which one of the following behaviors most applies to your neighbor's decision to invest in this business venture now?

Question

Quizplus · Accepted Answer

The neighbor's behavior can be attributed to the "house money" effect, which refers to the tendency of people to take risks with money that they perceive as "won" or "extra" without considering their previous conservative tendencies. The fact that the neighbor won the money through a lottery also supports this theory, as lottery winnings are often seen as "extra" or "unearned" money.

Recently, a Neighbor You Have Known for Years Won a Lottery