1 hr ago

IPL Mega Auction Shows How Emotions Can Override Planning

IPL mega auction or a masterclass in behavioural economics? Sunk cost fallacy, winner’s curse, FOMO and more · livemint.com

At an IPL auction, teams compete to buy players.

Sometimes a team keeps bidding because it has already spent time planning, even when the price is too high.

That is called the sunk cost fallacy.

A team can also win a bid but pay so much that it has less money for the rest of its squad.

This is known as the winner’s curse.

If a player seems rare, teams may worry they will miss their chance and bid more quickly.

They may also copy other teams that are bidding.

The article says investors can make similar mistakes when they follow crowds or chase rising prices.

Careful planning can be harder when excitement and pressure take over.

Key facts

Example player valuation: A team values a star player at ₹12 crore, but a rival pushes the bid to ₹13 crore; the example team eventually raises its bid to ₹15 crore.
Winner’s curse example: A team spends ₹25 crore of a ₹100 crore budget on one player.
Squad-building example: The article says the team then has 20 squad places to fill with less money available.
Scarcity example: The article imagines only two Indian fast-bowling all-rounders capable of batting at number seven.
Named franchises: Mumbai, Chennai and RCB are cited as bigger franchises whose pursuit of a player may influence other teams.
Investor parallels: The article compares auction biases with holding a falling stock, buying heavily promoted shares at high prices, and following popular investments.

livemint.com · 2 hrs ago