We explore how biased investors affect the market for real assets and estimate the resulting efficiency losses. Investors subject to non-proportional thinking ask (too) high merger premia to sell low-price targets and offer (too) low merger premia to buy high-price targets. As a result, M&A premia are lower for high-price targets and both low- and high-price firms are less likely to be acquired than firms in the middle of the price distribution. We test these predictions using a large sample of M&A transactions. We also quantify the value lost because positive-synergy deals do not happen due to non-proportional thinking. Our structural estimation suggests that investors' mistakes reduce the frequency of M&A transactions by about 8% and the value created by the M&A market by about 6%.