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 five 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?
A)overoptimisim
B)affect heuristic
C)loss aversion
D)house money
E)get-evenitis

Question

Quizplus · Accepted Answer

The "house money effect" is a behavioral finance theory suggesting that people are more willing to take greater risks with money that they have won or that feels like a windfall, as opposed to money that they've earned through work or saved over time. In this scenario, the neighbor's decision to invest all of his lottery winnings into a high-risk venture, despite previously being conservative with his money, aligns with the house money effect. He perceives the lottery winnings as "extra" money, which influences his willingness to take a risk he normally wouldn't with his own, hard-earned money.

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