Richard Thaler

That's because of the winner's curse.

The team that pays the most to go up and get that first pick is

is the one that's most optimistic about whatever player they're trying to catch.

They think they're going to get the next Tom Brady, and somehow they've forgotten that Tom Brady himself, the real Tom Brady, was taken with the 199th pick, not the first pick.

Certainly, if you're shopping for a house and all of a sudden there's an auction, it's a good time to go back looking because it's one thing to be the only person that wants to buy this house or there's one other.

But if there are 10 people bidding, the lesson from auctions is you want to ask yourself, if I win this auction, am I going to be happy?

And if there are a lot of bidders, chances are you're not going to be happy.

And the same can happen for bidding for like construction projects.

where the low bidder gets the contract.

And if there are lots of firms bidding, then often the low bidder is the one who forgot something important or forgot that everything ends up costing more than you expect.

So you see the winner's curse in lots of situations.

I'm particularly interested in what I call mental accounting.

The story of my professor and his wine is an interesting example of mental accounting.

What does he think he's spending when he drinks one of those old bottles

I actually did a survey of some serious wine lovers once, and we asked them a question.

You buy a bottle and you don't plan to drink it for 20 years.

What does it feel like you're doing?

Are you spending money or investing?

And they say, oh, I'm investing.

because I'm not going to drink that for 20 years.