Gambling on En Bloc Sales
By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 14 August
2008, 7.50 am and 7.20 pm)
Many investors of Laguna Park must be having sleepless
nights. It’s not just the ugly clashes we read about. It’s the
decision to sell or not.
The Singapore property market is sliding. If this
trend continues, and if the Laguna Park investor sells his unit
today, he would do well rather than to wait till next
If he wants a higher price than today’s price, he
should wait for the en bloc sale. Let’s assume, for the sake of
argument, that there is a chance that the en bloc sale can
fail, and buyers will disappear after that. What should he
This is the dilemma that is giving him sleepless
nights. This dilemma is studied in behavioral economics, which
is a branch of economics incorporating psychology to study the
What behavioral economics have found is that people
don’t want to take a gamble when they expect to gain something.
However, people are more willing to take a gamble when they
have something to lose.
Let me explain these two scenarios with examples. In
the first scenario, I offer you two choices. I can either write
you a cheque for $1,000 now, or you can take a gamble of
tossing a coin. If you win the toss, I will write you a cheque
for not $1,000 but $2,000. But if you lose the toss, I will
give you nothing. Will you take the gamble?
Nine out of ten times, you will not take the gamble.
You would rather take $1,000 now rather gamble with the toss of
Your behavior reflects the Laguna Park investor. Let’s
leave aside those sentimental owner-occupiers, who won’t sell
at any price. If this investor can make a profit selling now,
he will probably do that.
In the second scenario, instead of me writing the
cheque, you will be the one writing the cheque. But you will
still be the one to decide whether to take the gamble or
In this second scenario, I will offer you two choices
again. You can either write a cheque for $1,000 to me, or you
can take a gamble and toss the coin. If you win the toss, you
give me nothing. But if you lose the toss, you must write me a
cheque for not $1,000 but $2,000. Will you take the
Nine out of ten times, you will take the gamble and
toss the coin. In other words, in this second scenario, you
cannot accept the guaranteed loss of $1,000. You would rather
gamble and hope to pay me nothing.
This aspect of behavioral economics explains many
events, like why people suing investment banks for fraud
usually accept a smaller lump sum payment rather than go for a
trial. Or why rogue traders like Nick Leeson, when faced with a
guaranteed loss situation in their trades, would take bigger
Behavioral economics also makes us understand the
mindset of athletes vying for glory in the Olympics. Cheating,
and doping is one way about it, will forever be present because
most athletes feel like they are in the guaranteed loss
They feel like this because they have sacrificed their
careers to compete. To them, the gold medal means glory and
commercial endorsements. The silver and bronze medals are as
good as nothing. So they gamble with illegal drugs hoping to
escape detection and clinch honour.
Behavioral economics also tells us something about the
reaction of another investor at Laguna Park. Here, his
investment is under water. He is in the guaranteed loss
situation. So he will take a gamble. He will push for the en
bloc sale using fair or foul means.
So when en bloc sales turn ugly, we now know why. When
money and the gold medal are at stake, civilized behaviour and
fair play will take second and third places on the