behaviour
Playing with the house's money
The rule
We treat gains as "not really ours" and gamble with them wildly. But a rupee of profit spends just like a rupee of salary.
Where it flips
The mirror mistake is treating hard-won money as too precious to ever risk, so you never invest at all. Where it misleads: you split your money into fake buckets. The fix: see the whole pot as one, all of it yours, and size every risk against the total.
After a run of profit, the mind labels those gains as the market's money, not our own savings. So we take wild risks with them that we would never take with our first stake. But a rupee of profit spends exactly like a rupee of salary. Money has no memory of where it came from.
A worked example
An investor doubles ₹1,00,000 into ₹2,00,000. He decides the "extra" ₹1,00,000 is free money and bets it on a risky punt. The loss is every bit as real as losing the starting amount. [illustrative]
How to spot it
- ·calling profits "free money"
- ·taking bigger risks after a winning run
- ·using different rules for gains than for your first stake
Richard Thaler · Behavioural finance research