Max Bazerman, a teacher at the International Business Academy, knows today if not all, then absolutely absolutely many. A scientist, a professor of psychology, has become famous in all circles of exchange trade because of his famous phenomenon named in his honor. The highlight of his discovery in his genius, but, as you know, all ingenious is simple.
The greatest horror for all businessmen has always been the fear of losing their assets. Sooner or later, any person connected with financial activity faces a problem that formed the basis of the Bazerman phenomenon.
Experiments have shown that when faced with the risk of losing money, a person often begins to behave very irrationally. In support of this rule, Professor Bazerman conducts annual demonstration experience for first-year students.
Experience begins with the fact that the professor offers his students to enrich themselves and buy 20 dollars at a price below the nominal. To do this, he offers through an auction, the initial price of which is $ 1. The only unusual condition for bidding is that the student, who by results ranked second, must give the professor his last bid. Students, spurred on by the feeling of enrichment, quickly begin trading, the rate of which quickly reaches a mark of 12-14 dollars.
After betting at about $ 16, most of the participants fade and throw the idea to become richer. But the excitement and thirst for profit drives the remaining students to increase rates. Gradually, with increasing voltage, the rate also increases, which gradually reaches the denomination of the bill.
The origins of this behavior lie in fear of losing more than getting. At a price of $ 18, the person who is in second place understands that even a little bit and the next bet wins. Realizing this, he also understands that in addition to what will be left without a win, he will have to part with his 18 dollars. It is this fear of losing your money and makes the second participant make the next bet, hoping at least to stay in balance.
At this point, the fun begins. The price in one hundred percent exceeds $ 20, and the audience shakes with the laughter of the students. However, nothing ends here, and the rate continues to grow. If before players drove forward passion, now they are spurred by the desire to lose as little as possible. And this continues until one of the remaining participants surrenders. And notice that these are not stupid youths, which are easy to mislead, but intelligent adults who, behind their backs, often work in solid offices.
No matter how amazing it seemed, Professor Bazerman managed to sell $ 20 for $ 50, $ 70 and $ 100. A personal record, according to the teacher himself, is exactly 204 (!) Dollars. Of course, during the bidding process, the surrounding people sit and think how stupid the rivals are, since they have fallen into such an elementary trap at first glance. But no one can say exactly how they would act in such a situation. So that you do not blame the professor for gain, it is worth saying that he has directed all the money he has won to charity.
What is the moral of the phenomenon of Max Bazerman? And the morality here is very simple – a man, getting into a situation that threatens to lose money, begins to behave very unreasonably and even strangely. You can get under the influence of the phenomenon not only at auction, but also on various stock exchanges, in a casino, currency exchange (for example – Forex). People, suffering losses, begin to invest more and try to recoup, but as a result they lose considerably more. In order not to fall into such a trap, one should follow the simple rules of the same professor Bazerman.
Actually, there is only one rule, but neglecting it, can push you into a hole of uncontrolled losses.The rule is to determine for yourself before the start of the game (auction, auction) what the maximum amount you can afford. And if during the bidding the rate goes beyond your border, stop the game, even if it seems to you that there is still a chance to recoup.
For example, you play poker with several thousand in your pocket, but in order not to get away with anything, you decide in advance that you are ready to lose only a couple of hundred, then after you lose two hundred, you immediately get up from the table and Leave. In a financial environment, such amounts are called – Stoploss, while the very fear of losses is called Loss aversion.
Also do not forget about the stop-loss and those who are going to start their business from scratch. Any business, at the beginning of an activity, will not yield an income until it reaches the break-even level. Therefore, a novice businessman needs to know the threshold to which he can fall into negative, and, in case of exceeding the limit, it will be necessary to close the case.
Even if it seems to you that you simply did not correctly define your threshold. Most cases from practice indicate that if you have incorrectly determined your threshold, then most likely it’s not your business, at least for the time being.
Many psychologists agree on the fear of loss. Associate this scientists with the fact that, during various kinds of games, a person is always driven by excitement – excitement, experience, enthusiasm, enthusiasm. By itself, it does not bring anything bad and even serves as an excellent background for achieving the goal.
But when passion turns into the only thing that brings a person pleasure, then it merges with the person, and then the loss begins to be associated with the loss of oneself. Antidote for this can serve a variety of hobbies. The more a person’s interests that give him pleasure, the less he depends on the fear of loss.
From all of the above, we can conclude that a man who can not imagine his life without a risk that gives him pleasure can get into Bazerman’s trap. A man whose excitement is just an additional background, a factor in achieving the goal, will not rush headlong at any opportunity to get easy benefits.