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 A. the​ gambler's fallacy because they do not believe past events affect​ current, independent outcomes. B. overconfidence because they are overconfident they will win on the​ day's last bet. C. the certainty effect because they place too little weight on outcomes that they consider to be certain relative to risky outcomes. D. the reflection effect because their attitudes toward risk are symmetric for gains and losses. E. prospect theory because they are making decisions relative to their wealth at the start of the day.

Answer 1

Answer:

A. the gamblers fallacy

Explanation:

This is because he is down a lot but he is still going to take the shot.