Joe lost a substantial amount gambling at a racetrack today. On the last race of the day,

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Joe lost a substantial amount gambling at a racetrack 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 won more than she lost on 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 overconfidence bias, prospect theory, or some other principle of behavioral economics?

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Managerial Economics and Strategy

ISBN: 978-0321566447

1st edition

Authors: Jeffrey M. Perloff, James A. Brander

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