House Money Effect
Categories: Financial Theory
Immediately after sitting down at the Three Card Poker table at Caesar's, you were dealt three kings. Before you've even had a chance to order a martini from the cocktail waitress, you've got a stack of chips sitting in front of you that makes you feel like the Jeff Bezos of the table.
Even if you were to blow that entire stack of chips, you could still leave the table with what you bought in for originally, i.e. you're playing with house money.
Which...sounds great. But the bad news? When you don't look at money as your own, you tend not to be...quite as careful with it. House Money Effect. And it can strike investors just as easily as it can strike degenerative gamblers who don't know when to step away from the craps table.
When you make a killing, that money is now yours. Don't forget the Golden Rule: treat your money as you would like your money to treat you.