Transcript

This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas

From John R. Miles · Episode page · Watch on YouTube

· 44 min · 7,791 words · 69 timestamped sections

This is the full, timestamped transcript of "This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas", an episode of John R. Miles published January 15, 2026 (44 min, about 7,791 words). It mentions 9 people, works and ideas, including Winner's Curse, Richard Thaylor, John Arm Miles, Alex Emis, Sloan Research Fellowship.

What this episode is about

The discussion focuses on the sunk cost fallacy, a cognitive bias where individuals continue investing in a failing endeavor due to prior commitments, rather than evaluating future benefits objectively. It emphasizes the importance of reassessing decisions independently of past investments to avoid falling into a cycle of regret and inefficiency.

Key takeaways

  • Sunk costs don't build bridges; they build traps. Break free and pivot to success.
  • Mental representations can blind us: ignoring fees and traffic may lead to costly decisions.
  • Happiness isn't just sunshine; it’s also hidden traffic jams. Context matters more than we think.
  • Behavioral economics reveals humans as decision-making snowflakes—unique and beautifully flawed, not uniform automatons.
  • Your choices shape you: choose wisely; otherwise, you're just rehearsing a flawed script.

Who speaks in this episode?

What is discussed, and when

  1. – 5:00: Alex Emis, John Arm Miles, Sloan Research Fellowship
  2. – 15:00: Richard Thaylor, Carnegie Mellon, Winner's Curse
  3. – 25:00: Winner's Curse
  4. – 30:00: Wall Street Bets
  5. – 35:00: Richard Thaylor
  6. – 43:50: Alex Semos

Notable quotes from "This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas"

  • Welcome, to, Passion, Struck., Hi,, I'm, your host, John Arm Miles. And on the show we decipher the secrets, tips, and guidance of the world's most inspiring people and turn their wisdom into practical advice for you and those.
    about John Arm Miles · at
  • I am absolutely thrilled today to welcome Alex Emis to Passion Struck.
    about Alex Emis · at
  • Just as it is in every other dimension of our lives. So I thought it was pretty interesting that winner's curse came about, I understand it, over 30 years ago, but you have…
    about Winner's Curse · at
  • Fundamentally different way. They can say in the wall there's a subreddit called Wall Street Bets. What Wall Street Bets allows you people to do is to say look we're going to…
    about Wall Street Bets · at
  • I'm, active, on, X, or, Twitter,, however, you want to call it. So I have Alex Semos on that platform and my website is alexos.com and if you guys want to check out the book it's got a very active website.
    about Alex Semos · at

Who and what is mentioned in this episode?

People

  • Richard Thaylor — Person · 3 mentions · first at
    About, I understand it, over 30 years ago, but you have co-authored a new update to it with Nobel laurate Richard Thaylor. How did that collaboration come about? And what did…
  • John Arm Miles — Person · 1 mention · first at
  • Alex Emis — Person · 1 mention · first at
  • Alex Semos — Person · 1 mention · first at

Books & papers

Companies & orgs

  • Carnegie Mellon — Company · 1 mention · first at
    That's where I got my PhD. And we started talking pretty early and then my first job was at Carnegie Melon. We kept talking throughout that process and at some point he called…

Concepts & topics

  • Winner's Curse — Concept · 4 mentions · first at
  • Sloan Research Fellowship — Concept · 1 mention · first at
    For the listeners, if you don't know who Alex is, he's earned the Sloan Research Fellowship, multiple rising scholar awards, and is widely published. Alex what first drew you to studying decisionmaking? Was there a formative.
  • Wall Street Bets — Concept · 1 mention · first at

Full transcript with timestamps

Don't succumb to the sunk cost fallacy. The sunk cost fallacy is this idea that I've already done something. I've already gone down this path. I might as well keep going even though it's looking like a bad decision. Don't succumb to that sunk cost fallacy. Always take a moment. Think is the next step. If I hadn't gone into this decision to begin with, if I hadn't paid money to invest in this stock, if I hadn't taken that one class in that topic, would I still do that next thing? If the answer is no stop. Do something else. This is one of the most important things that behavioral science has taught us.

Welcome, to, Passion, Struck., Hi,, I'm, your host, John Arm Miles. And on the show we decipher the secrets, tips, and guidance of the world's most inspiring people and turn their wisdom into practical advice for you and those around you. Our mission is to help you unlock the power of intentionality so that you can become the best version of yourself. If you're new to the show, I offer advice and answer listener questions on Fridays. We have long- form interviews the rest of the week with guests ranging from astronauts to authors CEOs creators innovators scientists, military leaders visionaries, and athletes. Now, let's go out there and become passionruck.

I am absolutely thrilled today to welcome Alex Emis to Passion Struck. Welcome, Alex. How are you today?

I'm, doing, great,, John., Thank, you. I'm, so, excited, to, have, you, on, the, show. For the listeners, if you don't know who Alex is, he's earned the Sloan Research Fellowship, multiple rising scholar awards, and is widely published. Alex what first drew you to studying decisionmaking? Was there a formative moment that made you question why people act so differently from what theory predicts?

I, was, drawn, to, decision-m, very, early, on in college. Actually, the first time I was drawn to it was from the perspective of abnormal psychology. So, I was drawn to decision-m like thinking about cases when things really go wrong. So schizophrenia, bipolar disorder, and I've always just been fascinated by the different ways that people make decisions. you get into your own head assuming that everybody acts the way that you do. And as I met more people made more friends, I realized, wow people so many people think so differently than I do. And I was just fascinated by that. All of this these different perspectives, all of these different minds going out there and making decisions. While I was taking abnormal psychology and psychiatry courses, I was also taking economics courses and I was an economics major and doing in a pre-med program. And in economics, I was struck by the fact that

the assumptions in economics were basically the opposite of that was that everybody thinks exactly the same and everybody might have different preferences, but the basic idea that everybody has correct beliefs, everybody maximizes a utility function. you might care more about risk than I do or you might like apples or oranges more than I do but for the most part people are very similar and when you get to the macro models people are like literally the same these are like representative agent models so I was just struck by the fact that wow my classes about real human people are very different than the economic classes that I'm taking at the same time and I was just very fascinated by that fact and wanted to figure out how I can bridge those two things together and that's how I found behavioral economics and dove right in once once I discovered it.

Well,, a, lot, of, what, I, talk, to, people about on the show is the power of our choices. And I remember doing a an interview a number of years ago with Michelle Seager from Michigan and we were talking about the power of micro choices. And I understand you study how people mentally represent choices. What does it actually mean to represent a decision in the mind? A mental representation is essentially what you think you're facing. So let's say you decide to open up a bank account. So what does that mean? You look at the amount of money that your deposit will grow by. You look at the minimum deposit. You look at fees. All of these sorts of things. And then you make a decision whether to go with that bank or a different bank. A mental representation is basically how do I take all of those different features and how do I represent them in my mind. So some people, for example, completely

ignore overdraft fees. Like they don't even consider them. That's not in their representation of the decision that they're facing. And so when you're choosing to buy a stock or not buying a stock, when you're forming a portfolio when you're thinking about a job to get so one classic kind of example is like people from Michigan versus people from California were asked, people are about to go to college, where do you think they'll be happier? And their mental representation was all about the weather. the majority of their decision was where's the weather better and when California was a lot better in Michigan people thought wow people in California must be so much happier and turns out if you actually measure people's happiness it's not there's not much of a difference between the two places what were people missing well when you move to California there's something called traffic there's something called all of

the inconveniences that come from living in Los Angeles and that's just not in people's representations of that decision and when it's not in the representation you don't take it into account and make wrong forecasts, you make the wrong decision and potentially make some mistakes if you're missing something in your representation.

Well,, thank, you, for, sharing, that., such, a fascinating body of work and something I'm extremely interested in as is the topic of risk and I understand that you've researched and written a lot about dynamic inconsistency um which is really gets into the handling of how risk diverges from actions in real time and I understand there's a gap that can emerge how does that gap relate to this dynamic inconsistency

dynamic, inconsistency, is, a, very, general property that basically means look, I plan to do one thing and I don't do it. It's the idea that I have a goal. I want to work out. I want to lose weight. I want to get healthy. And then you say "All right, in order to do that, I need to go to the gym. I need to have a good diet. And these are the types of things I need to do." And then you make a plan. You write it down. You do whatever you need to do. You buy a gym membership. You make a nice little plan for yourself to meet the goal. And then when the time arrives to actually do that thing, you don't do it. You do something else.

In the case of risk, what my research has shown is that when people start taking on risk, they essentially really like these kind of low probability, high win gamles. So like when I'm thinking about forming a portfolio or buying some stocks, I have a plan for how I'm going to hold those stocks. Essentially, what my plan is, look, if the price goes up I'm going to hold on to it. If it goes down, I'm going to sell it right away. That plan generates risk that kind of looks like a lottery because the downsides eliminated, but the upside is like essentially infinity or not infinity, but a very large number. So that's what people plan to do. What do they actually do? Turns out they do the exact opposite of that. When the stock goes up or their portfolio goes up they're like, "Oh man, I just made some money. Let me cash that in and buy something or buy something else.

Whereas when they start losing, what do they do? They think, "Oh man, I'm in the hole. I got to get out of it. I better hold on to it. I better put even more money into it." They double down. They chase their losses. So basically, what does their portfolio look like? What does their ownership look like? The opposite of what they intended to do. Well,, and, one, of the, things, that, really interests me is taking this whole idea of decision-making and looking at it now in the world that we live in where digital technology and AI has become so pervasive. What new behavioral patterns or biases are you seeing as humans are adapting to machines or it could be our algorithms are adapting to our irrationalities depending on how you look at it.

I, don't, think, there's, any, new, psychology out there. The past 10 years, 15 years has not been long enough for us to develop any new biases or psychology. What we're seeing is a lot of the biases erupt on steroids. So, we're seeing people double down and risk a lot of money on the fact that now the casino, they don't need to drive to it. It's on their phone. So, we're seeing a huge explosion of bankruptcy cases all over the states, all over the world. like online sports gambling has been legalized all over the America.

It's also been legalized in places like Brazil. Brazil the government is now dealing with the fact that something like 25 or 30% of people's welfare assistance is being spent on sports gambling and things like that and getting people into debt and getting them into bankruptcy and basically people are losing all of their money. So that's just one example where access to digital technology where firms are very well aware of the biases that people have because they have full control over the information and the environment that people are in when they're making decisions. They could construct these algorithms in a way that really exploits these biases on a scale we haven't seen before.

What, do, you, think, the, next, evolution, of that is going to be? We've already seen it being used to disrupt political races. We're seeing used in warfare tactics. We're seeing it used by influencers. Where do you see this going? We're at a crossroads where there's one path where artificial intelligence can be really be a force for good. This is a similar crossroads we had with information technology in the late 90s where you know you had access to the library of Alexandria times 100, right? All of the information in the world at your fingertips.

Theoretically, we could be a in a utopia right now where everybody knows their biases and heruristics and they have all of the information in the world to solve them. They have governments and or firms that create apps for them to make better decisions. They're saving money for retirement. All of these sorts of things we could have been that is a world. That's not the world we ended up with. Uh the reason we didn't end up with that in that world is because there's a lot more money to be made by exploiting biases than to solving them. these biases. We're at a similar crossroads right now with AI. We have a situation where you can have artificial intelligence basically act as an agent for you, act as a decision aid for you on a scale that we've never been able to reach before because these are completely personalized things that know your biases, know your heristics, and can really make help you make better

decisions. But on the other hand, we could have AI just basically allow firms to engage in firstdegree price discrimination, which is basically all of the consumer surplus we get we learn that we get in Econ 101 because firms can't engage in per first price in discrimination. Now firms can be as they through these AI machine learning algorithms, they have all of the data on e every single individual to allow them to target them with specific prices. So we can get into that world too. we can see the emergence of f first degree price discrimination that on a scale we've never seen before.

We can have an emergence of misinformation of people not really knowing what's real out there or we can have something quite different where AI actually helps solve all of these problems. So obviously with all the changes that are hitting us, this is a completely different world in behavioral economics just as it is in every other dimension of our lives. So I thought it was pretty interesting that winner's curse came about, I understand it, over 30 years ago, but you have co-authored a new update to it with Nobel laurate Richard Thaylor. How did that collaboration come about? And what did you learn stepping into the world of a foundational thinker as both colleague and co-author?

So, I've, known, Richard, for, a, while., When I was in graduate school, my office ended up being right next to his because he did his winters in San Diego and that's where I got my PhD. And we started talking pretty early and then my first job was at Carnegie Melon. We kept talking throughout that process and at some point he called me up and said "Why don't you come out and give a talk at University of Chicago?" I ended up with a job at University of Chicago. Sometime in the first year at University of Chicago, he called me and said, "Hey I got a project. Would you be interested in in in thinking about it?" And it was basically the original Winner's Kirch which was basically the anomalies columns that he had been writing about each individual behavioral economics phenomenon. Basically taking all of those columns that he had written up to 92, stapling them together, and giving them making them into a book. and they

it happened to have gone out of print and the publisher asked him if he wanted to do an update. I jumped at the opportunity. It's not every day you get to work with a noble laureate. He's a big hero of mine and we're friends. So I thought it was going to be a lot of fun. It ended up not being an update as a those things traditionally are done. About twothirds of the book is brand new. Essentially what we ended up deciding to do was to take those original anomalies columns and use them as like a foundation for each chapter and then rewriting them to some extent for the modern audience. And then for each chapter that covers a specific topic in behavioral economics, there's an update that looks at all of the research that's happened in over 30 years in that space.

So that those updates essentially catch the reader up to what's been happening in behavioral economics since 1992 which includes new topics and kind of new areas that behavioral economics has gone into. And

it, is, interesting, over, that, 30-year period how many of these theories used to be questioned at first and now you can spout them off and they're widely accepted. although I still don't see a lot of them being placed in modern textbooks, which is something that we need to fix. Um, but I'm interested. I've heard a lot about Richard Thaylor. Haven't had a chance to meet him here. He's very humorous, but I'm wondering what's the most powerful piece of wisdom or advice he's given you. Probably the most powerful piece of advice is in in terms of my day-to-day life that I use is to not worry or argue, particularly argue about things that probably aren't going to happen. So he he calls the don't argue over off equilibrium paths which is an econ way of saying look if you and your wife are arguing about something you know what kind, of, house, you're, going to, get, when you move to Stanford California think

about are you going to move to Stanford California in to begin with and the chances of that are fairly low so just don't ar don't have that argument say let's table that it turns out like a lot of the kind of conflicts and anxiety that I particularly have and many others do too are about things that counter are factuals, low probability events, things that are probably not going to happen. And thinking through, oh, am I worried about something? What is it? What is the probability of that thing actually happening? And if it's really low, just think about something else. Argue about some well, try not to argue about, but if you have to argue about something that's probably going to happen. And that piece of advice, I actually reference it all the time, particularly in my interpersonal life and how I go about my day.

I understand behavioral economics began as a rebel field as I alluded to earlier, but I understand when the book was first written, a lot of the experiments that were done at that point in time were in the classroom or in the lab. And I know one of the big evolutions, especially now through the work that Katie Milman and Angela Duckworth are doing with behavior change for good, is we're now able to start doing a lot more field research and with their evolution, a lot more mega studies around this. How has that shaped where the field is going? Do you feel

that's, mostly, what, the, updates, are focused on is the fact that precisely as you said the original behavioral economics studies and that was the push back was that they were done with college students at low stakes sometimes hypothetical not even like really consequential decisions and economists were basically it's like hey that's cool fun study but we don't really care about college students who don't know what they're doing we care about stock market professionals we care about professional athletes we care about CEOs of companies and we just don't think they're going to make these mistakes. Nice study, but we don't care. And for the last 30 years the field has moved into, as you said the field. It's real. It's studies with real professionals, large studies, field experiments, observational data sets showing that the types of things that we studied with these college students they show up with CEOs of major Fortune

500 companies with people with real money on their line making decision after decision.

It's, really, interesting., I, first, started to get immersed in this in the mid 2000s and I was working as an executive at Lowe's at the time and I was in charge of all the data across the company and we spent a lot of time looking at the supply chain obviously but even more time looking at customer patterns and interactions. And so we we're hiring a team of data scientists and behavioral scientists to help us understand how do we modernize the supply chain ecosystem and get people to work more efficiently. But more importantly, we were looking at how do you engage with the consumer in what we were trying to do as a total closed loop. So as they were using different channels to interact with Lowe's, whether it be online, the call center, in the store, etc. How do you make it feel to them like it's one channel and not separate distinct channels? And that's evolved today for them into Milos and other things. But

it's really fascinating to me how much it is now powering so, much, of, commerce, that's, done, around the world. Can you talk about that a little bit more? I think with behavioral economics and behavioral science, I think what many people's perceptions are missing is the amount of behavioral economics and science that's been going on in the private sector. A lot of the focus has been on governments. It's been on public sector initiatives, but the private sector has really been doing behavioral economics before behavioral economics was even a field. Companies like Lowe's, as you mentioned, are doing a lot of behavioral economics in terms of thinking about improving the customer experience. I had worked with PNC briefly at some point, thinking about designing my wallet, which is like their platform for getting people to have all of the information that they would want about their bank account in one spot.

Eliminating these sorts of barriers for the consumer experience. Again, when you're thinking about kind of the standard model of economics, these things shouldn't really matter. or the fact that you have to click a couple times to get information about the amount that you have on loan versus the amount that you have in your cash or savings account. These sorts of things are so cheap that people should be able to do it and you don't need to create a separate platform for it. But the fact of the matter is because people are have bounded rationality, it really matters that they have everything in front of them in an easily digestible way. This goes back into the idea of mental representation. If I have my loan in one spot of the website or the platform, if I have my savings account in a different platform, all of these things are earning different interest rates. I have a credit card open. So, what a lot of

people, do,, for example,, when, they, don't have these things at the same time, they have a high interest rate balance on their credit card while at the same time holding enough money in their bank to pay off the credit card. So essentially they're losing money on the interest rate, paying these high interest rates well where they could just completely pay off their credit card and not have to deal with that at all. But the fact is because they don't have all of that information given to them at the same time on some platforms, many people are doing that. And I think a lot of companies are really trying to incorporate behavioral economics to make these sorts of consumer experiences a lot better.

Alex,, thanks, for, going, into, that., I wanted to go back to the book and I wanted to start with the basic idea itself. What is the winner's curse and how does it show up in our daily lives? The winner's curse is best demonstrated in a in a little experiment that you can do yourself. If you want to make some easy money and you have an free evening get a jar, fill it with some coins, and go to the pub or something like that and say "Look everybody in the room, bid on this jar of coins, and the winner gets the money.

You don't have to take the coins. I'll venmo you the money." And what you're going to see time after time, and I know this because we've run these experiments in class all the time, the person who actually ends up winning will pay more for the jar that's in the jar. So you're going to be able to earn some money from this. So, why does that happen? Essentially when you look at the jar, everybody looks at the jar, people get a different estimate of how much is in the jar. So some people think, let's say there's 15 bucks. Some people say it's 18 bucks.

Sometimes we'll say 12, 9, 8. People are all over the place. They don't know how much money is in there. But who's going to end up winning? The person who wins the jar is going to be the person who's most optimistic, who's most wrong in the positive direction. And that's the winner's curse. It's the idea that the person who's winning is actually going to be losing money because they're wrong in the positive direction. And that's the demonstration of the winner's curse. And that's partly why it happens. But the first time that when it was documented in the 70s, it wasn't with a jar of coins. It was oil executives scratching their head about the fact that look, we got these expensive engineers looking at oil wells, thinking, "How much oil is going to be in these wells?" And every time we actually win a bid on an oil well, we end up having less oil in there than we thought we did. And we keep losing

money. What's going on? And they publish these papers in trade journals calling it the winner's curse by basically saying, "Look, something is wrong. Every single time we end up winning, we end up actually losing. What's going on?" and folks like Richard Taylor, Max Baserman and other people delved into it and tr started to understand the psychology behind the phenomenon.

Yeah,, man., It's, so, interesting., I, I spent the early part of my career working as a practice leader at Arthur Anderson and I was in the Houston market and I still remember sitting in this room at Exxon Mobile with hundreds of executives across the industry hearing hearing an economist come and talk to us saying that we had reached the peak of big oil and from this point in history going forward there was going to be a demise every single year. Boy was he wrong with the evolution of how we do fracking and other things, but

science, finds, a, way. Yes,, exactly. But it reminds me of markets and how modern markets change, which is something that you guys covered in the book and you did it through social contagion and the persistence of overconfidence in modern markets by examining Reddit and Robin Hood. And I was hoping you could give the audience a little bit bigger take of what I'm talking about here

with, Robin, Hood, and, the, prefila proliferation of these online communities essentially. So this has a bit more to do with the stock market and these like meme stock phenomenon. There's obviously many more implications, but the meme stock phenomenon is a great example. We've had bubbles in the past and in the past and going back to the 1600s, we've had bubbles. And it's this idea that people over there's this herd mentality where people think like, yeah, maybe this is overvalued, but everybody else is bidding on it. If I don't bid in on it I'm going to miss out on all this money to be made, so I'm going to bid on it too. And the price goes through the roof. And then one day, somebody wakes up and says, "Hey, this is a bubble. I'm getting out." And this starts that whole downstream cycle where everybody ends up losing money except for that one person who got out in time. And this idea

behind bubbles is now again supercharged when you have these digital spaces like the combination between Reddit for example and Robin Hood. What does that combination look like in practice? The GameStop situation is a very nice example because it allows people to coordinate their decisions very in a fundamentally different way. They can say in the wall there's a subreddit called Wall Street Bets. What Wall Street Bets allows you people to do is to say look we're going to all hold on to this and actually they have this their own language to talk about the fact that everybody that is going to be holding on to these this these sorts of stocks. So they buy the stocks and without Reddit, you don't really know who else is going to sell because nobody's coordinating. Everybody's sitting independently in their house.

With Reddit, you have the ability to for people to coordinate to say like diamond hands. What that means is that everybody's committing on holding. And what that means is that bubble can go on for a much longer time than what we've seen before because what we've seen before is these things like are bubbling up and they explode. Bubbling up and explode. With GameStop, you look at the price now and it's actually it hasn't crashed. It went down certainly from the peak but it's still up there because people are coordinating to hold their shares saying, "Look, we're we're going to keep this going." And the ability for people to coordinate on buying these things very easily through Robin Hood and the combination of being able to publicly coordinate and communicate on these forums has led to a very different financial market for retail traders than say what we had even 10 years ago.

Yeah, that that was just shocking when that happened a few years ago to see how a community platform like that drove such a huge market change. It was fascinating and scary at the same time. I'm not sure your thoughts about it, but I just I still remember that

and, just, being, in, complete, awe, about what happened these, there's, two, different, models, of financial markets out there. There's a model of kind of efficient markets where the price of a stock is the discounted future cash flow of that company. That's the standard rational model that people are saying like look this is the price that this stock is worth because that's how much it's going to be paying out through dividends and all sorts of other things to me and that's how much I'm willing to pay for. This is the fully rational model. The other one is by John Maynard Keynes who was this giant economist in the 20s and 30s and he called the stock market a beauty contest.

What's the what does he mean by that? Back in the day you had these newspaper con contests where there was a whole page of different faces. Let's say usually was women's faces. And the winner of the contest was the one who picked the face that everybody else picked. So not the one he preferred, the one that everybody else picked. So this gets into this idea of theory of mind where my decisions are based on what I think everybody else is thinking. And that's a fundamentally different model of the stock market where now I don't care how much cash flow GameStop has. I don't care how much cash flow AMC has. I am buying GameStop because I think other people are going to buy GameStop and that's it. And that and therefore because of that the odd these online forums have this huge power of coordinating this behavior because now I can say look I know that GameStop's going to pop because a lot of people are

saying GameStop is going to pop and now you have AMC and Kohl's and all of these other different completely random companies popping just because of this phenomenon.

Yeah,, man., It, is, so, interesting. Yeah., Well,, I, wanted, to, ask, you, about some of the classics and I thought we could start with loss aversion. We've long believed loss is hurt about twice as much as equivalent gains please us. Does this still hold true in the hyper stimulated digital environment

or, our, attention, emotion, do, you, find changing that ratio? That's, a, great, question., We, don't, have, a lot of data on this first of all. So you're thinking like what is the loss of orig

right, exactly or, like, a, just, a, completely, digital asset. I don't think anybody I know has collected data on this but this is a quite an interesting question. What are the implications for of behavioral economics when you have physical goods such as a house, a mug, other sorts of products? What are the implications of those of behavioral economics in that space for a world where a lot of stuff is just going to be digital completely isn't going to have a physical presence in the world. If I was to hypothesize and, based, on, some, of my, own, data, where I've run endowment effect experiments with digital art and essentially I found that things are largely unchanged.

If I tell you that you are the owner of an art piece versus I ask you how much are you willing to pay for that art piece, your valuations change just from me telling you you own it. The minimum that you'd now be willing to accept a part with it increases by two and a half times relative to 5 seconds ago before I told you that. And this is like the for your audience, this is the NFTts, nonf fungeible tokens, which are now used to allow digital creators to to to have some ownership over their art. So the endowment effect doesn't seem to really weaken when you go into the digital space,, at least, in, that, sense.

Okay., Well,, another, one, I, wanted, to, go into was the fairness anchoring effect. And so I I guess the way I want to frame this is fairness and norms. So, there are a lot of modern pricing debates that people get into about rejecting deals that we see online and feeling that they're unfair even when they cost us money, etc. What does this say about the role of fairness and sustaining social trust? In my view, fairness and norms are key for qu sustaining cooperation. many experiments is the fact that if you have a game so it helps to go through one an example of this sort of game. So the public goods game is a really nice way of studying these things. What it means is that let's say me and you and maybe two or three other people are playing this game and the game is fairly simple. Me and you have an amount that we're given. So like that's an endowment that let's say it's two bucks. Each of

us has two bucks and then we decide how much of the two bucks to contribute to the quote unquote public good. Whatever we contribute gets added up multiplied by some amount and then divided evenly between all of us. What that means is that even those who didn't contribute anything would still get a piece of the public good. What does that mean for economic what does economic theory say about this? Well, if I get something without contributing anything guess what I'm going to do? I'm gonna contribute nothing. And then guess what happens? Nobody contributes anything. So the economic theory is a very strict prediction of what happens in public goods schemes. What actually happens in reality? Well, people contribute something. They contribute 20 30 40% of their endowment. Especially in the first period, they contribute something gets divided. Everybody gets something. But as the game continues, especially in the

very final round, those contributions go to zero. In the final round, people think, well, everybody else is contributing something. You know what? What if I just don't contribute anything and I'll still get paid? Guess what? Everybody else is thinking the same thing and then nobody contributes and nobody gets anything other than their endowment. So basically the overall pie shrinks as the game progresses. So the real innovation happened in n 1999 2000 with Ernst fair and Simon Goer ran a game of the public goods game but they introduced one little extra thing which has to do with fairness and norms.

What they did is that after every single round of the public goods scheme everybody has the opportunity to spend a little bit of their own money to take away a larger amount from somebody else. What does this actually mean in practice? It allows people to punish those who don't contribute. If people feel like, whoa, this was unfair. I contributed something but you didn't. I can now punish you, hurt you at a cost to myself. Again, economic theory, very simple prediction. Why the hell would I spend money to punish somebody else? I wouldn't. So, the economic theory predicts no contributions, no punishment. What ended up happening in this game? People felt like non-contributors were acting unfairly and they were more than willing to punish them. And what did that do to the game? It meant that people who were thinking maybe I won't contribute, now they got worried about getting punished.

So they contributed. So contributions went up almost all the way. And not only did they go up in the beginning, they stayed high through the entire game even in the last round. Because even in the last round, if I don't contribute I'm still going to get punished. So I'm going to contribute. So adding this element of fairness of nor punishing norms allowed cooperation to flourish in the setting without the ability to punish people who violate norms. Cooperation just completely went to crap and was by the final round there was none of it left.

Well, and now I wanted to talk about one of the things that Richard Thaylor is most famous for, which is his work on nudges, which he did with Cass Sunstein who has been on this program. And but I wanted to revisit this in its ethical dimension, and you've been discussing a little bit about this in the past couple of answers, but we started this episode talking about choice and the research that you've done around how to make better choices. But there's this tension between helping people to make better choices versus manipulating their autonomy. And so you've explored this dual use quality of throughout the book.

And what did you find that's most meaningful about the research? So the whole nudge program was started by a paper called libertarian paternalism and the idea there was to say look standard economics defines cho choice set in a particular way and behavioral economics says that we can choices can change without affecting people's ability to make decisions. So what does that mean? So like let's go to the 401k example. So the 401k example the classic opt-in, opt out study. So before Bridget, Madrien, and Sheay had this landmark study in the late 1990s essentially what did that look like?

People chose to opt in into a retirement plan. And most people didn't. What they did instead is to say, hey, instead of people choosing to opt in, let's make the default that they are in the plan and if they want to, they can opt out. So all it is is that instead of checking the top thing, the bottom thing is checked. For standard economists doesn't matter, right? It's the choice that is exactly the same. I'm deciding whether I opt in or opt out.

Turned, out, this, raised, opt-in, rates through the roof. Many more people ended up being enrolled. Right? So this is the behavioral economics part. This is a classic nudge. You don't change the the actual choice environment. People are free to make the same decisions as before, but they're making different decisions because you're introducing this seemingly irrelevant factor, which is what Richard calls it, into the mix what people are defaulted in. The ethicality behind it depends on who you ask. Frankly, when you're getting into ethics, this is a normative field. So different people have different opinions. Now, you're in the world you're not in the data world, you're in the opinion world

right?, And, there's, a, group, of, people, who view nudges as perfectly ethical. Other people disagree with that statement. They think that your behavioral economics should be part of the coercion. People can have disagreements about this. I think with something as important as a retirement savings, you have to start thinking about the costs and benefits to people at the end when they're reaching retirement and they're thinking, "Wow, I forgot to opt in into my 401k plan. I really wish I did. If only somebody had nudged me to contribute to more my 401k, I would have ended up with more money for my retirement. In other cases, in the case of organ donations or something like that, Richard and Cass have work in this space saying, "Look, we should give people full autonomy and nudges don't really belong in that space." So, it really depends on the context and it depends on the argument.

Yeah., I, also, wanted, since, we're, on, this topic to explore Amazon and Amazon Prime sales because I understand Amazon uses nudges as well as anyone does. H how should a listener think about this when it comes to like the psychological triggers that happen when Amazon is doing like a Prime Day?

Yeah., So,, I, think, we, we, talked, about this in the beginning of the conversation. Companies have been doing these behavioral science, behavioral economic experiments since they started. So, Amazon is literally doing thousands of VB tests on how a Prime Day advertisement, how it should look, where it should look to who it and then you have different versions and those two different versions are given to different people depending on their buying habits. the optimization of behavioral science in order to get people to purchase is just it's done to a very very huge extent by the by these companies. Now, I haven't looked at specific things that particularly Amazon has done, but certainly there's research in behavioral science showing that something like making shipping free, for example, or doing expedited shipping for a lower amount on a specific day really gets people to purchase because they're

thinking, "Wow, their loss aversion is getting activated there that they feel like, they're, going to, be, losing, less money. This is something that they really want. They want this thing faster. This is the whole self-control myopia thing being taken advantage of. Now I get to have this thing which maybe I don't need at all, but hey, I get it faster. I'm going to buy it. That's to say that they're doing a lot of different things all at the same time. And they're making these cocktails of behavioral science in order to get people to purchase. Firms have been doing this since the beginning of capitalism. It's just now it's on a completely different scale.

Well, Alex, if listeners could take two or three practical tools from this conversation to improve their own decision- making, where would you tell them to start? Don't succumb to the sunk cost fallacy. So, the sunk cost fallacy is this idea that I've already done something. I've already gone down this path. I might as well keep going even though it's looking like a bad decision. Don't succumb to that sunk cost fallacy. Always take a moment think is the next step if I hadn't gone into this decision to begin with if I hadn't paid money to invest in this stock if I hadn't taken those that one class in that topic would I still do that next thing if the answer is no stop do something else just this is one of the most important things that behavioral science has taught us I think the first thing that I said don't worry about things that have very low probabilities of happening don't argue about those things that's a very Good

lesson too. I use it all the time in my own life. And the other thing that I've done research on and that's in the book is take time to deliberate. Fast decisions are not necessarily good decisions.

So, system, two, thinking. System, two, thinking., And, people, know this, but they just that doesn't work into their everyday lives. So a lot of states have cooling off periods before they can get a divorce. There's a reason for that. There's cooling off reasons before you can get purchase a firearm in many states. There's a reason for that. The reason is that we know that decisions are better if we think harder. We cool off. The emotions wear off and we can consider all of the options. And it's actually very easy to incorporate that lesson into your everyday life in terms of stopping and thinking while you're making important or semi-important decisions.

Alex, I always love to ask this question. What does it mean to you to live a passion struck life?

I, think, I'm, extremely, lucky, to, be, doing what I'm doing because I've stumbled into a field where I feel passion struck and just passionate every single day of it. Literally every single day because there's just so much out there to explore and to learn about. And for me living a passion struck life is to keep my mind open, to read, to say yes all the time instead of saying no. If I don't think I have time to do something and it sounds new and potentially exciting, just make the time and do it. that that that's really and and taking risks has led me to be quite interested and excited and passionate in my everyday life in terms of what I do every single day for work as well as for fun.

And, lastly,, Alex,, where's, the, best, place listeners can learn more about you?

I'm, active, on, X, or, Twitter,, however, you want to call it. So I have uh Alex Semos on that platform and my website is alexos.com and if you guys want to check out the uh the book it's got a very active website winnerscurse.org. It's got a lot of these materials. It's got slides to take these sorts of concepts and break it down. It's got replication materials for the experiments if you want to run them learned how to run them by yourself. So that's another place.

Awesome., Well,, Alex,, it, was, such, an honor to have you. Thank you for joining us on Passion Star. Thank you so much. Thank you.

Questions about this episode

Who speaks in "This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas"?

John R. Miles (Host), Alex Imas (Guest).

What is "This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas" about?

The discussion focuses on the sunk cost fallacy, a cognitive bias where individuals continue investing in a failing endeavor due to prior commitments, rather than evaluating future benefits objectively. It emphasizes the importance of reassessing decisions independently of past investments to avoid falling into a cycle of regret and inefficiency.

What is mentioned in this John R. Miles episode?

9 people, works and ideas are mentioned, including Winner's Curse, Richard Thaylor, John Arm Miles, Alex Emis, Sloan Research Fellowship, Carnegie Mellon. Each one on this page links to its own page with every episode that mentions it.

How long is "This Bias Turns Winning Into REGRET: The Winner's Curse | Alex Imas"?

The episode runs 44 min; the transcript is about 7,791 words in 69 timestamped sections.

More from John R. Miles

About this transcript: the episode's spoken words as captioned on YouTube, split into timestamped sections. Reclip.Me locates every person, work and idea in the text, keeps the time it is first named, and quotes the words around it verbatim. Last updated January 24, 2026.