Natural Freedom

How to sell $20 bill for $204?

To take money from the MBA students is easier than to take candy from a child.

Each year, Professor Max Bazerman sells a $ 20 bill MBA students from Harvard Business School much higher than its nominal price. His record is $ 204. And he does it this way.
He shows the bill to the class and says that he would give $ 20 a person, who will give for it the most money. True, but with a small condition. A man offering the second biggest sum is the one who has to pay the sum offered for the bill.
To make it clear - let's say two of the highest bids were $ 15 and $ 16. The winner receives $ 20 and the second person will have to pay $ 15 to professor. These are the conditions.
Bidding starts with a dollar and quickly reaches $ 12 - $ 16. At this point, most students drop out of the auction and then only two people with the highest offers remains. Slowly but surely, the auction comes to $ 20.
It is clear that it is impossible to win at this point, but they do not want to lose too, because the loser not only get nothing, but would be forced to pay the professor his last bid.
As soon as the auction goes higher than $ 21, the class bursts into laugh. Students of MBA, supposedly so smart, willing to pay for a twenty bill above par. Indeed, comical and very accurately describes the behaviour of the holders of an MBA.
However, the auction continues and quickly comes to $ 50, then to a hundred, up to $ 204 - a record Bazerman got during his teaching career. Professor use the same trick with top managers and CEO's of major companies and always sells $ 20 above face value (the money spent on charity).
Why do people always pay twenty dollars more money?
People, especially in business have a weak point which is a loss aversion or fear of loss. Numerous experiments show that people behave irrationally and even inadequate, when they begin losing money.
Initially, all students feel that they have the opportunity to get easy money. They are not fools and will not pay more than twenty bucks for a twenty bill. However, as soon as the bidding reach $ 12 - $ 16, the second person understands that he faces a serious loss, so he starts bidding more than he intended, until the auction reaches $ 21. At this stage, both parties will lose money. But someone has to lose only a dollar and the other twenty. To minimize losses, everyone tries to become a winner. However, this race leads only to the fact that both participants in the auction are losing more and more money until the loss is less than that amount, to dig a hole deeper that just does not make sense.
Thus, the desire to get easy twenty dollars fails. Most interestingly, there are lots of cases especially in the stock market and in the casino which shows the Bazerman phenomenon in action. When person bgins to lose money, he hopes to win back a loss rather than fix the loss and almost always loses even more money.
So remember the lesson cunning professor - the fear of loss leads to greater losses. Fix losses until they are minimal. Well, never trust a money man with an MBA.

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"The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn."
Alvin Toffler

Interesting post.

and very TRUE!

It is the reason so many people lose money on the stock market (amongst other reasons) and other investments.
It also drives a lot of human behaviour, influences decisions and otherwise has an influence on them.

Much more so than gaining something, losing something is a powerful motivator.

The fear of loss.

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e.g. When the recent 'stutter' in the markets happened, I ended up quite a bit down on my investments, had not cashed them in so it was a notional loss, it fell really quickly while I was busy and could not react.

What did you think friends and family said when they heard about this?
Of course, they all wanted me to cash them in in case I 'lost' more money. They were calling me up all the time and telling me when I saw them in person. It was driving them crazy that I was quite content to sit on that so called loss. Some of them wanted me to plough more money in, to try and recover it. They came up with all sorts of mad schemes.

They were getting more worked up than I was. They never get that excited when my accounts are up, only when they are down.

So I sat on them. My gut was telling me it was a temporary thing and they would recover.

Sure enough, few weeks later that 'loss' did not exist anymore as they had recovered. Then they were still saying I was crazy for hanging onto it, even though if I had followed what they said I would have lost a lot of money. As it was I ended up turning a profit about 3.5 weeks later, not a massive one, but enough to put a smile on my face. I also on top of that caught some action on the way back up, which really put a smile on my face

Then was when I cashed them in, took the money and went out for a nice meal

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In building a statue, a sculptor doesn't keep adding clay to his subject.He keeps chiseling away at the inessentials until the truth of its creation is revealed without obstructions. Perfection is not when there is no more to add,but no more to take away.

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EVERYTHING in life is conditional...EVERYTHING.

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