Why should be short foot ?!

Every year, Professor Max Bazerman sells MBA students from Harvard Business School twenty-dollar bill much higher than the face value. His record - selling $ 20 for $ 204. And he does it in the following way. He shows the bill to the class and said that will give $ 20 to the person who will give for it the most money. However, there is a small condition. The man who was just behind the winner, will be required to give the professor the amount that he was willing to pay $ 20.

To be clear - let's say two of the most high the bid was $ 15 and $ 16. The winner receives $ 20 in exchange for $ 16, and the second person will have to pay $ 15 to professor. These are the conditions.

Bidding starts at one dollar and quickly reach $ 12- $ 16. At this point, most students drop out of the auction, and there are only two people with the highest offers. Slowly but surely coming to auction $ 20 figure.
It is clear that it is already impossible to win, but also do not want to lose, because the loser will get no nothing - it is still forced to pay his last professor denomination bida.

As soon as the auction goes abroad to $ 21, the class explodes into laughter. MBA students, supposedly so smart, willing to pay for a twenty-dollar bill above par. Indeed -komichno and very accurately describes the behavior of the holders of the MBA degree.
However, the auction continues and quickly comes to $ 50, then a hundred, up to $ 204 - a record Bazermana for his teaching career. Incidentally, during the trainings the professor the same trick with top managers and CEO of large companies - and always sells $ 20 above face value (the money spent on charity).

Why do people always pay twenty dollars more money, and that the professor is trying to show? In humans, especially in business, there is a weak spot - loss aversion or fear of loss. Numerous experiments show that a person is behaving irrationally and even inadequate, when starts to lose money.
Initially, all students feel that they have the opportunity to get free money. They are not fools and will not pay more than twenty dollars for a twenty-dollar bill. However, once the bids reach $ 12- $ 16, the second person understands that he faces a serious loss, so he starts bidit more than going until the auction does not reach $ 21. At this stage, both parties to lose money. But someone will lose all dollar, and some twenty. To minimize losses, everyone tries to be a winner. However, this race leads only to the fact that both participants in the auction are losing more and more money, as long as the size of the loss does not reach this amount, that a deeper hole to dig just does not make sense.

Thus, the desire to get khalyavnykh twenty turns around losses. The most interesting is that there is plenty of data - especially in the stock market and in the casino - which show Bazermana phenomenon in action. The person starts to lose money. Rather than fix the loss, he hopes to be able to win back the loss - and almost always loses more and more money.

So remember the lesson cunning professor - the fear of loss leads to large losses. We fix the damages, as long as they are minimal.

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