The Winner’s Curse: Why Smart People Lose Their Way | Alex Imas – EP 716

What if “winning” isn’t proof of intelligence, but evidence that something went wrong? In this compelling episode of Passion Struck, behavioral economist Alex Imas joins John R. Miles to unpack The Winner’s Curse, a powerful concept from behavioral economics that explains why smart, capable people systematically overpay, overcommit, and double down on bad decisions. Drawing from his research and his forthcoming book co-authored with Nobel Laureate Richard Thaler, Alex reveals how the Winner’s Curse shows up far beyond auctions and markets—shaping career choices, relationships, investments, leadership decisions, and even how we interact with AI-driven systems. When competition, uncertainty, and ego collide, the “winner” is often the person who misunderstood the situation the most. John and Alex explore why human decision-making breaks down under uncertainty, how mental representation distorts the choices we think we’re making, and why loss aversion and sunk costs keep us chasing outcomes that no longer serve us. They also examine how modern technology and algorithms don’t correct these flaws but often amplify them. At its core, this episode is about reclaiming agency in an irrational world: learning to recognize when confidence is misleading, when winning comes at too high a cost, and how better decisions begin not with smarter thinking, but with clearer framing. If you’ve ever wondered why success sometimes feels hollow, why “winning” creates regret, or why intelligent people repeat the same costly mistakes, this conversation will change how you see choice itself. Passion Struck was recently ranked #1 on FeedSpot’s list of the Top Passion Podcasts on the Web, recognizing the show’s ongoing commitment to thoughtful, human-centered conversations like this one. Check the full show notes here: https://passionstruck.com/the-winners-curse-alex-imas/Download a Free Companion Workbook with reflection prompts tied to this episode. All links gathered here, including books, Substack, YouTube, and Start Mattering apparel:https://linktr.ee/John_R_MilesPre-order You Matter, Luma:https://youmatterluma.com/For more about Alex Imas:https://www.chicagobooth.edu/faculty/directory/i/alex-imasIn this episode, you will learnWhy the Winner’s Curse means the “winner” often made the biggest mistakeHow behavioral economics challenges the myth of rational decision makingWhat mental representation is and how it distorts the choices we believe we’re makingWhy loss aversion and sunk costs keep us chasing bad outcomesHow uncertainty, competition, and ego interact to produce overconfidenceWhy AI and algorithms often magnify human bias instead of correcting itPractical ways to slow down decisions and avoid costly “wins.”Support the MovementEvery human deserves to feel seen, valued, and like they matter. Wear it. Live it. Show it.https://StartMattering.comDisclaimerThe Passion Struck podcast is for educational and entertainment purposes only. The views and opinions expressed by guests are their own and do not necessarily reflect those of Passion Struck or its affiliates. This podcast is not a substitute for professional advice, diagnosis, or treatment from a licensed physician, therapist, or other qualified professional. Connect with John Pre-Order The Mattering Effect:

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00John R. Miles?

  Coming up next on Passion Struck.

• 0:02Speaker 01

  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 the stock, if I hadn't taken those, that one class and 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.

• 0:38John R. Miles?

  Welcome to Passion Struck. I'm your host, John Miles. This is the show where we explore the art of human flourishing and what it truly means to live like it matters. Each week, I sit down with changemakers, creators, scientists, and everyday heroes to decode the human experience and uncover the tools that help us lead with meaning, heal what hurts, and pursue the fullest expression of who we're capable of becoming. Whether you're designing your future, developing as a leader, or seeking deeper alignment in your life, this show is your invitation to grow with purpose and act with intention. Because the secret to a life of deep purpose, connection, and impact is choosing to live

• 1:18John R. Miles?

  like you matter. Hey friends, and welcome back to episode 716 of Passion Struck. We're continuing our series, The Meaning Makers, where we're examining how meaning is formed, protected, and sometimes distorted in modern life. In our last episode on Tuesday with Dr. Stephen Sloman, we explored how beliefs form and how certainty, when left unexamined, can quietly narrow our thinking and distort our sense of meaning. Today, we take the next step. Because even when our beliefs feel solid, The real test of meaning shows up in the choices we make under pressure.

• 2:01John R. Miles?

  My guest today is Alex Emes. Alex is a behavioral scientist and professor whose work examines how people make decisions in competitive, high-stakes environments, especially when the desire to win quietly distorts judgment and obscures cost. He is the author of The Winner's Curse, written with Nobel laureate Richard Thaler. Our conversation centers on a powerful idea known as the winner's curse, a phenomenon where people win by overpaying, overcommitting, or overreaching, only to discover later that the victory itself carried structural costs that they never intended to accept. What makes this so relevant to meaning is this: many lives aren't misaligned because

• 2:45John R. Miles?

  of failure, they're misaligned because of success achieved inside distorted environments. In this episode, we explore why capable people make systematically costly decisions, how our environment shaped choices more than intentions, why competition amplifies overconfidence in risk, and how recognizing the winner's curse can help us build success that actually holds. Before we dive in, a quick note on a project that mirrors these themes of inherent worth. My new children's book, You Matter Luma, is a bridge to that truth, a reminder that your significance isn't earned by your performance, it's a fact of your existence. You can preorder it now at Barnes & Noble or YouMatterLuma.com. If this episode resonates, please share it with someone navigating a similar season.

• 3:31John R. Miles?

  And if you haven't yet, a five-star rating or review on Apple Podcasts or Spotify helps these conversations reach the people who need them most. You can catch the full visual experience on our YouTube channels, Passion Struck Clips and John R. Miles. Now let's continue The Meaning Makers with Alex Emes. Thank you for choosing Passion Struck and choosing me to be your host and guide on your journey to creating an intentional life. Now, let that journey begin.

• 3:58John R. Miles?

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

• 4:04Speaker 01

  I'm doing great, John. Thank you.

• 4:05John R. Miles?

  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 decision making? Was there a formative moment that made you question why people act so differently from what theory predicts?

• 4:26Speaker 01

  I was drawn to decision making 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 making, 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

• 5:07Speaker 01

  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

• 5:49Speaker 01

  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 I discovered it.

• 6:10John R. Miles?

  Well, a lot of what I talk to people about on the show is the power of our choices. And I remember doing an interview a number of years ago with Michelle Seeger 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?

• 6:35Speaker 01

  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.

• 7:18Speaker 01

  So one classic kind of example is like people from Michigan versus people from California. We're 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

• 8:00Speaker 01

  and make wrong forecasts, you make the wrong decision, and potentially you make some mistakes if you're missing something in your representation.

• 8:09John R. Miles?

  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, 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?

• 8:39Speaker 01

  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

• 9:20Speaker 01

  like these kind of low probability, high win gambles. 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 downside's 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

• 10:05Speaker 01

  else. Whereas when they start losing, what do they do? They think, oh, man, I'm in the hole. I gotta 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.

• 10:27John R. Miles?

  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?

• 10:51Speaker 01

  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

• 11:34Speaker 01

  on sports gambling and things like that, 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.

• 12:03John R. Miles?

  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 it used in warfare tactics. We're seeing it used by influencers. Where do you see this going?

• 12:16Speaker 01

  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 had access to the Library of Alexandria times 100, right? All of the information in the world at your fingertips. Theoretically, we could be in a utopia right now where everybody knows their biases and heuristics, and they have all of the information in the world to solve them. They have governments and 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.

• 12:59Speaker 01

  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 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 heuristics, and can really help you make better decisions. But on the other hand, we could have AI just basically allow firms to engage in first degree price discrimination, which is basically all of the consumer surplus we get, we learn that we get in Econ 101

• 13:43Speaker 01

  because firms can't engage in first price indiscrimination. Now firms can be as they, through these AI machine learning algorithms, they have all of the data on 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 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.

• 14:18John R. Miles?

  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 a winner's curse came about, I understand it, over 30 years ago, but you have co-authored a new update to it with Nobel laureate Richard Thaler. 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?

• 14:49Speaker 01

  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 Mellon and 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 thinking about it? And it was basically the original winner's curse, which was basically the anomalies columns that he had been writing about each individual behavioral economics phenomenon, basically

• 15:32Speaker 01

  taking all of those columns that he had written up to 92, stapling them together and giving them, making them into a book. And 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 Nobel 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 those things traditionally are done. About two thirds 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.

• 16:14Speaker 01

  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.

• 16:39John R. Miles?

  And it is interesting, and 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. But I'm interested. I've heard a lot about Richard Thaler, haven't had a chance to meet him. I hear he's very humorous, but I'm wondering, what's the most powerful piece of wisdom or advice he's given you?

• 17:10Speaker 01

  Probably the most powerful piece of advice is, 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 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 to begin with?" And the chances of that are fairly low, so just don't argue, 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

• 17:52Speaker 01

  have, and many others do too, are about things that, counterfactuals, 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.

• 18:24John R. Miles?

  I understand, behavior 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 Milkman 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?

• 19:02Speaker 01

  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 pushback, was that they were done with college students at low stakes, sometimes hypothetical, not even like really consequential decisions. And economists were basically 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,

• 19:44Speaker 01

  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.

• 20:01John R. Miles?

  Before we continue, I want to pause on something important. Listening to a conversation about decision making under pressure is one thing. Noticing how those forces shape your own choices is quite another. That tension between momentum and discernment is exactly what this conversation with Alex Emes is about. Meaning isn't shaped only by what we choose, it's shaped by what we continue. That's why each episode in this series is paired with reflection tools inside my Substack, The Ignited Life, not to tell you what to do, but to help you see structure more clearly. Asking questions like, where might I be honoring momentum without reassessing cost? What environments are shaping my choices more than my values? And what would it look like to choose sustainability over escalation? You

• 20:44John R. Miles?

  can join us at theignitedlife.net. Now, a quick break from our sponsors. Thank you for supporting those who support the show.

• 20:56John R. Miles?

  You're listening to Passion Struck on the Passion Struck Network. Now, back to my conversation with Alex Emus.

• 21:03John R. Miles?

  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 were 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 is a total closed loop.

• 21:44John R. Miles?

  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 my Lowe's 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?

• 22:14Speaker 01

  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.

• 22:57Speaker 01

  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. The fact that you have to click a couple of 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,

• 23:41Speaker 01

  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 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.

• 24:21John R. Miles?

  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?

• 24:34Speaker 01

  The winner's curse is best demonstrated in a little experiment that you can do yourself. If you want to make some easy money and you have a 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.

• 25:18Speaker 01

  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.

• 25:59Speaker 01

  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 at 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 published 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 Thaler, Max Bazerman, and other people delved into it and started to understand the psychology behind the phenomenon.

• 26:37John R. Miles?

  Yeah, man, it's so interesting. I spent the early part of my career working as a practice leader at Arthur Andersen. And I was in the Houston market, and I still remember sitting in this room at ExxonMobil with hundreds of executives across the industry.

• 26:53John R. Miles?

  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. Yeah.

• 27:11Speaker 01

  What science finds a way.

• 27:13John R. Miles?

  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 Robinhood. And I was hoping you could give the audience a little bit bigger take of what I'm talking about here.

• 27:40Speaker 01

  With Robinhood and the 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, then 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.

• 28:23Speaker 01

  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 of behind bubbles is now again, supercharged when you have these digital spaces, like the combination between Reddit, for example, and Robinhood. 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 gonna all hold on to this.

• 29:04Speaker 01

  And actually, they have this, their own language to talk about the fact that everybody that is gonna 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 gonna sell. Cause 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've 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.

• 29:49Speaker 01

  Saying, look, we're gonna, we're gonna keep this going. And the ability for people to coordinate on buying these things very easily through Robinhood. 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.

• 30:10John R. Miles?

  Yeah, 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.

• 30:32Speaker 01

  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. The people are saying like, look, this is the price that this stock is worth. Because that's how much it's gonna 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 twenties and thirties. And he called the stock market a beauty contest. What's the, what did he mean by that? Back in the day, you had these newspaper contests where there was a whole page of different faces.

• 31:16Speaker 01

  Let's say usually it was women's faces. And the winner of the contest was the one who picked the face that everybody else picked.

• 31:26Speaker 01

  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.

• 32:10Speaker 01

  And now you have AMC and Kohl's and all of these other different completely random companies popping just because of this phenomenon.

• 32:18John R. Miles?

  Yeah, man, it is so interesting.

• 32:21Speaker 01

  Yeah.

• 32:21John R. Miles?

  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 has hurt about twice as much as equivalent gains please us. Does this still hold true in the hyper stimulated digital environment? Or are attention emotion, do you find changing that ratio?

• 32:43Speaker 01

  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 aversion on crypto or something like that?

• 32:53John R. Miles?

  Right, exactly.

• 32:54Speaker 01

  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.

• 33:32Speaker 01

  And essentially, I found that things are largely unchanged.

• 33:38Speaker 01

  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 now be willing to accept a part with it increases by two and a half times relative to five seconds ago before I told you that. And this is like the for your audience. This is the NFTs, non-fungible tokens, which are now used to allow digital creators 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.

• 34:17John R. Miles?

  Okay, well, another one I wanted to go into was the fairness anchoring effect. And so 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?

• 34:47Speaker 01

  In my view, fairness and norms are key for sustaining cooperation. We in many experiments is the fact that if you have a game, so it helps to go through one 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.

• 35:23Speaker 01

  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 gonna 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 games. What actually happens in reality? Well, people contribute something. They contribute twenty, thirty, forty percent of their endowment.

• 36:05Speaker 01

  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 nineteen ninety-nine, two thousand, with Ernst Fehr and Simon Gokter, ran a game of the public goods game, but they introduced one little extra thing, which has to do with fairness and norms.

• 36:48Speaker 01

  What they did is that after every single round of the public goods game, 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.

• 37:08Speaker 01

  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 H E L L would I could 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.

• 37:52Speaker 01

  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 punishing norms allowed cooperation to flourish in this 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.

• 38:25John R. Miles?

  Well, and now I wanted to talk about one of the things that Richard Thaler 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?

• 39:12Speaker 01

  So the whole nudge program was started by a paper called Libertarian Paternalism. And the idea there was to say, look, standard economics defines a 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 let's go to the 401k example. So the 401k example, the classic opt in, opt out study. So before Bridgette, Madrian and Shay had this landmark study in the late 1990s. Essentially, what did that look like?

• 39:54Speaker 01

  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 that instead of checking the top thing, the bottom thing is checked.

• 40:12John R. Miles?

  Right.

• 40:12Speaker 01

  For standard economists, doesn't matter, right? It's the choice that is exactly the same. I'm deciding whether opt in or opt out. Turned out this raised opt in rates to 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, in 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. 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.

• 40:55Speaker 01

  Now you're in the world, you're not in the data world, you're in the opinion world.

• 40:59John R. Miles?

  Right.

• 40:59Speaker 01

  And there is 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 an 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 of 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,

• 41:40Speaker 01

  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.

• 41:53John R. Miles?

  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. 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?

• 42:16Speaker 01

  Yeah, so I think 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 would. 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 these companies. Now, I haven't looked at specific things that particularly Amazon has done,

• 42:57Speaker 01

  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.

• 43:43John R. Miles?

  We've talked about the digital world a few times now. I want to think about digital biases, specifically digital biases from the standpoint of authoring. And I think of Substack. And I think in general, I'm finding that people are under reporting their use of AI tools because of something you explore in the book, which is the social desirability bias. But to me, if someone asks you if you're using AI to help with your writing and someone answers no, it's almost unbelievable to me. Because if you're using a Google search or literally any technology that's out there today,

• 44:24John R. Miles?

  all of it is underpinned by different AI frameworks. So arbitrarily, you are using it in almost any research that you're doing. But what do you think it reveals about how humans perceive technology's role in their competence or their creativity?

• 44:42Speaker 01

  I think so. I have a paper about this on AI and social desirability bias. So we run a study in at the large university, asking students about their AI use. And when you ask them, how much do you use AI ever? Right. The answer is like 63%. And you might think, wow, that's low. Most students, I think, are using AI. And it turns out, if you ask a slightly different question, and this is using techniques from psychology in order to overcome social desirability bias. You ask not whether you use AI, you ask whether your friends use AI.

• 45:20Speaker 01

  Now, social desirability bias isn't really affected because it's not me. You're asking about my friends and that number is 95%. So that gap between 95% and 60 something percent, that is the gap that people are misreporting their AI use.

• 45:37Speaker 01

  Essentially, and we've collected other data to confirm that the gap, that it's under reporting versus over reporting in one condition versus the other. So this is something that that's going to be a challenge for companies, for policymakers, especially for educators. So this is a space that I'm very interested in from both a personal perspective. I'm a teacher, but also from a policy perspective, in terms of like, how do we think about university or higher ed in the age of AI? Obviously, we can't say never use AI, become a Luddite.

• 46:11John R. Miles?

  Yeah.

• 46:12Speaker 01

  But also, we want people to use AI in a way that helps them to learn something. So they retain some information, but they also learn how to use these tools in an effective way that's going to help them when they exit the university. And that kind of cost benefit is something that that conversation is happening right now, but it needs to happen faster.

• 46:32John R. Miles?

  Yeah, I can't remember if I was talking to Bobby Parmar or Judd Kessler, but one of them was telling me in their class that I've understood that The papers that they're getting back are progressively getting better and better because it's obvious students are using AI to help them write them. But what I wish I remembered which one told me this, but what they were doing in their class was taking it to another level. So they were making them come in front of the class to show the application of what they researched to make sure that they were retaining what they were writing about. And they were telling me that it really showed a huge difference between who was actually retaining and using the information

• 47:14John R. Miles?

  versus who was just using the AI tools. Because I know I find myself, when I'm using them a lot, I'm not retaining as much about the work that I'm doing as compared to when I'm doing a whole bunch of research and then having to write it on my own.

• 47:32Speaker 01

  There's great research about this. Sherry Malamed, who's Judd's colleague at Wharton, shows that if you do research through AI versus just Googling it, so you have access to Google, which is also uses AI, but in a different way versus LLMs to help you research a topic, you just simply retain more information when you're, even though you're reading the same information. When you search for it yourself and parse through it, the way that our brain works is to retain the information between the pauses. So like when you're reading a book versus you get the Spark Notes from a book, right? Why did we discourage Spark Notes like in 30 years ago, 20 years ago, when I was in school? The information is the same, but the process of reading the book, the text and pausing, flipping back and forth, all of that is part of learning,

• 48:17Speaker 01

  but it's discounted because it doesn't seem like that's not where the information is. And that process is really, there's, we need to be very explicit about what actual learning looks like in order for the broader population to understand that AI is an incredible technology. But reading Winner's Curse by saying, what is in the Winner's Curse? Give me a two paragraph summary versus actually reading the book. You're going to retain something very different.

• 48:48John R. Miles?

  Yeah, absolutely. 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?

• 49:01Speaker 01

  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 the stock, if I hadn't taken those, that one class and 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. Think that's a very good lesson, too.

• 49:46Speaker 01

  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.

• 50:01John R. Miles?

  System two thinking.

• 50:02Speaker 01

  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.

• 50:41John R. Miles?

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

• 50:47Speaker 01

  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. Oh, 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.

• 51:16Speaker 01

  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.

• 51:42John R. Miles?

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

• 51:47Speaker 01

  I'm active on X or Twitter, however you want to call it. So I have a Alex Emas on that platform and my website is AlexEmas.com. And if you guys want to check out the, 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, learn how to run them by yourself. So that's another place.

• 52:15John R. Miles?

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

• 52:19Speaker 01

  Thank you so much. Thank you.

• 52:21John R. Miles?

  That brings a close to today's conversation with Alex Emas. What stayed with me the most is how quietly the winner's curse operates, not just in markets or negotiations, but in lives shaped by escalation, comparison, and environments that reward winning without revealing cost. Alex showed us that good decision making isn't about intelligence or restraint. It's about clearly seeing inside the systems we're operating in. Meaning isn't about accumulating wins. It's about choosing what can be sustained without distortion. And that brings us to what's next in the Meaning Makers series. In my upcoming episode next week, I'm joined by Shanna Pearson, where we'll explore how meaning is cultivated not through optimization or acceleration, but through presence, embodiment, and the discipline of slowing down. If Alex helped us see the hidden cost of winning, Shanna

• 53:06John R. Miles?

  will help us explore what it looks like to live from alignment rather than escalation.

• 53:11Speaker 02

  It bothers me when people refer to ADHD as a superpower. It really does because there's nothing about ADHD that makes life easier.

• 53:22Speaker 02

  And it's difficult to manage ADHD on so many levels, like in your relationships, career, personal health, name it. And so when people are like, oh, it's a superpower. You should be able to do like all of these things so much. You've got this and you don't. And you know that life is really hard and you know that you're struggling and you know you're working 100 times harder than every single human and longer than anyone. There's no superpower. And so then you just feel like there's something else is wrong with you because you can't even use your superpower. You don't even know where it is. Like, where's the superpower part of this?

• 53:54John R. Miles?

  Before you move on with your date, I'd invite you to pause and ask, where in my life might momentum be substituting for discernment? If you want support applying these ideas, you can join me inside my Substack at theignitedlife.net, where each episode in the series is paired with reflection tools designed to help you integrate insight into how you actually live. As we continue The Meaning Makers, remember, significance isn't built by winning at all costs. It's built by choosing what truly holds. I'm John Miles. You've been passion struck. Until next time.