Can you sell a $20 Bill for $200?

Can you sell a $20 Bill for $200?

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Every year, Max Bazerman, a Harvard Business School professor runs the exact same experiment with his students. In short form, he auctions off a $20 bill but places strict rules on how the betting can take place regulating who pays, and who wins.

The big twist is that while the winner pays up and wins the $20, the loser still has to pay his last bid and get nothing. This addition changes the entire dynamic of the experiment as soon as the betting comes down to the last two people – both of whom are going to have to pay up, but only one of whom is going to get anything for it. This brings us to the purpose of the experiment: that point when students realize that they are no longer playing to win, but rather, they are playing not to lose. The $204 for a $20 bill is the extreme, albeit true, example of what happens when people get so scared of losing that they do the irrational and continue throwing money into the pot instead of cutting their losses before it gets out of control.

It would be great if this only happened in this one, fairly harmless (except for the poor sod who paid $204 in an effort to try and save his pride), example, but, as many people know, this kind of behaviour sneaks into all sorts of corners in our lives both personal and academic. I guess this leads the question: can we avoid it? Or are we stuck waiting for the next slip?

In an effort to explain this phenomenon referred to as ‘Sway,’ Ori Brafman, co-author of “Sway:” The Irresistible Pull of Irrational Behaviour in an interview with Alvaro Fernandez of the Huffington Post, defined it as  â€œwhy perfectly rational people make irrational choices.” Unfortunately for most of us, however, the answer to the aforementioned question is no, we cannot avoid it. It is a phenomenon that affects just about everyone in every walk of life.

Have you ever been in this position? Can you sense it coming on and when do you realize that you are too far in?

Photo Credit: 401K