This refers to a cognitive bias that causes investors to take greater risks with profits that they have already earned from their investments than they would with their initial capital. This happens due to the fact that investors tend to mentally segregate between the capital that they first invested and the profits that they have subsequently earned from it. They treat the profits as a lesser form of capital and thus tend to take greater risks with it. The prevalence of the house money effect was proposed by Nobel laureate Richard Thaler and Eric Johnson in their paper “Gambling with the house money and trying to break even.”