Behavior when the chips are down: An experimental study of wealth effects and exchange media

In this experimental study, we implement a lottery-type game that is similar to the investment game of Imas (2016) and Gneezy and Potters (1997) to examine if the form of the exchange medium influences wealth effects and risk taking in general. We argue that reduced moneyness should lead to increased risk taking and decreased wealth effects (i.e., the break-even and house-money effects). We find that when the lottery task is conducted using tokens (with monetary value), there is a significant break-even effect but an insignificant house-money effect. However, when the lottery task is conducted using a digital media of exchange, what we label “e-coins,” there is a significant house-money effect and no break-even effect. Finally, with cash, there are both significant break-even and house-money effects. We find that subjects risk a bit more when using tokens compared to cash, but risk significantly more when using e-coins.