Richard Thaler

We fill up a jar with coins or jelly beans.

If it's jelly beans, we say they're worth 25 cents each.

And we auction off the jar.

The winning bidder gets the amount of money, 25 cents times the number of jelly beans is worth.

What happens if we do that experiment?

The average student bids less.

Let's suppose that it's $50 in the jar.

The average student bids less than $50.

Maybe they're conservative or risk averse or what have you.

But the winning bidder always bids more than the value of the jar.

Typically, it's a guy.

So the winner of the auction is cursed in the sense that he or she has paid more than what the object is worth.

I ended up later writing a paper with a former student of mine about a similar behavior in the National Football League.

Every year, the NFL has a draft of new players where the worst team last year gets the first pick.

So they can pick any of the incoming players.

And what we found is that those early picks turn out to be not as good as people expect.

And there's an active trading of the picks, which is a little bizarre.

But you can trade the first pick for the seventh and eighth picks or for five picks in the second round or what have you.

And what we found is those high picks are overvalued.

You'd always be better off trading down.