More skill, less bias? Breaking down break-even effects in poker
Chasing and the house money effect are well-known phenomena in dynamic environments of risky activities such as investment decisions or gambling. Recent studies suggest that such behavior emerges from dynamic inconsistency and leads to substantial welfare consequences that can extend beyond financial losses. This study examines novel field evidence from online poker which allows to study biased individuals in a relevant environment where outcomes do not entirely depend on chance. It turns out that individuals exhibiting the house money effect earn less, play less frequently and are of lower relative skill than unbiased individuals. Chasers, on the other hand, earn more, play more frequently and are of higher relative skill than the unbiased group, but chasing is detrimental to their performance and reduces profits by approximately 50%. These findings provide important insights regarding similar environments (such as day-trading) where measuring of individual skill might not be viable.