Joe lost a substantial amount gambling at a race track today. On the last race o

Question

Joe lost a substantial amount gambling at a race track today. On the last race of the day, he decides to make a large enough bet on a longshot so that, if he wins, he will make up for his earlier losses and break even on the day. His friend Sue, who is up for the day, makes just a small final bet so that she will end up ahead for the day even if she loses the last race. This is typical race track behavior for winners and losers. Would you explain this behavior using over-confidence bias, prospect theory, or some other principle of behavioral economics? Joe and Sue's behavior can be explained by 0 A, the gambler's fallacy because they do not believe past events affect current, independent outcomes B. prospect theory because they are making decisions relative to their wealth at the start of the day. O C. overconfidence because they are overconfident they will win on the day's last bet. 0 D. the reflection effect because their attitudes toward risk are symmetric for gains and losses O E. the certainty effect because they place too little weight on outcomes that they consider to be certain relative to risky outcomes.

Explanation / Answer

A. The gambler's fallacy because they do not believe the past events affect current, independent outcomes.

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