Why Do People “Buy High and Sell Low”? The Truth Behind the Bias Traps That Destroy Investors
The premise that “people can make rational investment decisions” often collapses in reality.Nobel Laureate in Economics Richard Thaler and behavioral economist Alex Imasunraveled the reasons why investors fall into the “same traps” over and over again on a Bloomberg podcast (the program was released on January 16, 2026).
In this article, we break down the core ideas of their updated collection, “The Winner’s Curse: Behavioral Economics Anomalies,” along with concrete investment examples.
1. “There are no people in the model” — The sense of discomfort that started behavioral economics
Thalersays that in traditional economics classes, he felt, “There are no humans there. There are only ‘rational agents.’” People forget things and are swayed by emotions. The important point is that this discrepancy occurs in a “predictable direction.” In other words, the idea is that while just saying “stock prices are wrong” is not useful, if you understand “in which direction and why they tend to be distorted,” you can apply it to investing.
2. Typical “bias traps” are still being reproduced today
Regarding the social science criticism that “reproducibility might be shaky,” Imas explains that classical anomalies are generally continuing to be reproduced in online experiments and other settings. The updated version of “The Winner’s Curse” is structured to “add and engage in dialogue” with the research of the last 30 years, while being based on columns from the 1990s.
2-1. Availability heuristic
We feel that things we see often in the news are “more likely to happen.” In terms of investing, funds tend to concentrate on stocks and themes that are talked about every day. It is not calm probability, but rather how easily something comes to mind that dominates judgment.
2-2. Conjunction fallacy (the “Linda problem”)
People feel it is “more likely” for someone to be a “feminist bank teller” than just a “bank teller.” This is an example where a story created by intuition beats the basics of probability (the size of the set). In investing, there is also a pitfall where the more elements you add, such as “this company has AI, a famous CEO, and major corporate partnerships... so it will definitely grow,” the more “plausible” it looks.
3. The behavior that causes investors the most loss: taking profits early and cutting losses late
A staple of behavioral finance is the disposition effect.People want to sell immediately when prices go up to lock in a “win,” while they hold onto stocks that have gone down because they do not want to lock in a loss. A phrase introduced in the program as a metaphor is Peter Lynch’s “cutting your flowers and watering your weeds.”
What is troublesome is that this remains not only with individual investors but also with “pros.” Imas and his colleagues' research suggests that while institutional investors are good at “buying,” their performance in “selling” might be better if they just swapped stocks randomly.
4. “Even if the money is the same, it’s a separate account in your mind” — Mental accounting
What Thaler emphasizes is mental accounting.
For example, a difference arises depending on the “location of the wallet,” such as “consumption hardly increases even if housing prices rise, but it is easy to spend when a stock is acquired and cash comes in.” An anecdote appears where he himself was asked how he would use his Nobel Prize money and immediately replied, “As irrationally as I can.”
When applied to investing, the treatment of the same yen changes, such as “dividends are money I can spend,” “unrealized gains are not yet mine,” or “a loss is not a loss unless it is realized,” which distorts judgment.
5. “Winning but cursed” — The Winner’s Curse
The winner’s curse occurs when everyone competes for an object of the same value (oil rights, M&A deals, bidding projects, etc.) with uncertain estimates. The most optimistic estimate tends to be the highest bid, and as a result, the person who wins ends up overpaying.
This concept is the central motif of the book “The Winner’s Curse” co-authored by Thaler and Imas, and in modern investing, it applies directly to “overheated IPOs,” “hyped corporate acquisitions,” and “buying high on popular themes.”
6. The solution is not “willpower” but “mechanisms”: Nudges and guardrails
This is the core of the program. People are bad at “fixing things once they understand them” and instead think “I’m fine” (bias blind spot). Therefore, what is needed ischoice architecture.
A typical example is retirement pensions. By setting up automatic enrollment and default investment destinations (such as target-date funds), opportunity losses due to neglect are reduced. This trend is discussed in connection with institutional improvements since the Pension Protection Act (PPA) of 2006.
Also, “Save More Tomorrow” (increasing contributions in line with future salary increases), proposed by Thaler and Benartzi, is a representative intervention that increases savings through “automation with low resistance” rather than “motivation.”