Behavioral Responses to Losses Disguised as Wins: A Field Study of Slot Machine Players.

We present the results of a field study examining the effect of losses disguised as wins (LDWs) on subsequent slot machine gambler betting behavior. An LDW occurs when the amount won is less than the amount bet. Using non-experimental, individual transaction gambling data, we examine post LDW betting behavior in a panel of 42,669 gamblers and 17 million slot machine plays. The primary empirical findings include: (1) streaks of three LDWs greater than 75% of the original amount bet lead slot gamblers to increase the amount bet on the next spin; (2) streaks of three LDWs less than 25% of the original amount bet results in gamblers decreasing their bet size on the next spin; (3) slot machine gamblers play faster following streaks of three LDWs compared to losses. We interpret these behavioral findings of differing outcomes associated with small versus large LDWs as consistent with a cognitive dissonance effect (Festinger, 1957). Specifically, the disconnect between the amount "won" (actually lost) and the audio and video stimulus produced by the slot machine highlighting the LDW, produces a dissonance-related arousal that players seek to avoid or reduce leading to changes in betting behavior. Our results complement the experimental findings on LDWs and suggest that the size of the LDW matters in examining the impact on gambling behavior.