Understanding the House Money Effect: A Systematic Review

The house money effect is the tendency of individuals to exhibit risk-seeking behavior after a prior gain. Individuals differentiate their perceived gains with own money. This behavioral bias influences human behavior in future decision-making. This review examines the implications of the house money effect on an individual investor’s financial decision-making. Our study adopts a systematic review approach to understand and extensively synthesize the existing literature. The study considered 34 articles from the Scopus database. The study provides an overview of the literature regarding theories, methodology, research opportunities, and developments in the house money effect. The study points out the situational factors influencing the house money effect and the association of the bias with other behavioral biases. This review identifies the gaps in the literature and provides directions for future research to deepen the understanding of the effect of house money on individual investors. This study builds a strong framework for future research.