Question

1)In Behavioral Economics, what does it mean to say that people like to “play with the house’s money”? What is wrong with that phrase?

Answer 1

When we say that people like to play with the house's money it indicates that people are willing to use the proceeds of investment in another investment scheme so that the original invested amount is kept back. If an individual is investing $1,000 in a scheme and receives $1,500 in return, he will be playing with the house money if he now invest the additional $500 and is keeping the original investment of $1,000 back in his account. This pattern is usually not visible in investment market but in gambling where the house is assumed to be the place of gamble and the gambler is playing with the money won previously in the gamble. The original amount used in the gamble is never played with again but only the amount that is won in addition to the original amount is used.

This is the reason why the phrase is actually misleading. People do not play with their house money because even in the Gamble the same amount is not used again and again. Playing with the house money indicates that people are investing the money they have in their house which is misleading.