IPL mega auction or a masterclass in behavioural economics? Sunk cost fallacy, winner’s curse, FOMO and more | Explained

The IPL mega auction highlights how emotions can cloud decision-making for franchise owners. These psychological traps mirror investors’ behaviours in stock markets, where past spending often skews current judgments.

The IPL mega auction offers more than expensive player deals. It also reveals how emotions can overpower planning. Franchise owners face psychological traps similar to those affecting stock market investors.

Sunk Cost Fallacy

Consider a team that values a star player at ₹12 crore. A rival pushes the bidding to ₹13 crore. The first team remembers hours of preparation and other players it missed. Walking away now feels like wasting that effort. It raises its bid to ₹15 crore, abandoning its original limit.

This is the sunk cost fallacy. People let past spending or effort influence decisions that need fresh judgment. An investor might similarly hold a falling stock because it has already lost 30%. Instead of examining its current value, the investor waits for recovery.

Winner’s Curse

Another trap is the winner’s curse. A team pays ₹25 crore for one player from its ₹100 crore budget. Celebration soon gives way to concern. With much of its money spent, the team must choose cheaper, unproven players. Its remaining 20 squad places become harder to fill without weakening team balance.

Winning the bid can therefore result in a loss. The price paid exceeds what makes sense for the buyer. Investors face something similar when buying heavily promoted shares at extremely high prices. Excitement can fade quickly when prices fall after listing.