Narrow Economic Applied Theory Contest, with Prizes

Create and Apply an Economic Theory, Win a Book or Two

In the Introduction to his 1994 book, The Winner's Curse, Behavioral Economist Richard H. Thaler notes that people are usually observed to be willing to pay about half as much for Super Bowl tickets as they would be willing to accept for selling the tickets that they had previously purchased. This is a fairly common result not limited to tickets.

He claims that economic theory says that both buying and selling prices should be almost identical. He also claims that rationality does imply the near equality of buying and selling prices.

Of course he is wrong, but not in all cases.

The challenge here is to present a VALID theory that can successfully distinguish between cases in which consumer buying and selling prices for a given good at a given point in time are roughly equal and cases in which selling prices are significantly higher than the buying prices. Spreads and markups applied by vendors are NOT of interest here as it is consumer willingness to buy or sell that is under consideration. It is the content of the theory that is of interest, not a formalized presentation. There is a distinct possibility that the answer that I have in mind will be found to be inferior to other alternatives.

Prizes will consist of one or more books interactively chosen from my semi-infinite accumulated surplus supply, both fiction and non-fiction, supplied free with free shipping, with multiple winners possible, but none guaranteed. The contest will be closed, or not, at my whim.

Please reserve the comment section for questions and actual comments, and send entries directly to my email address below, with 'CONTEST' in the subject line.

Don Lloyd


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Does the theory need to be

Does the theory need to be general enough to apply to any good, or just Superbowl tickets?

I'm sure I won.

I'm sure I won.

Noah and Andy, "Does the

Noah and Andy,

"Does the theory need to be general enough to apply to any good, or just Superbowl tickets?"

More general is preferred, but perfect generality is not required. Of course a theory can specify what it applies to and what it doesn't. I'm not sure that I really want to guide answers in one direction or another, but what I had in mind would apply to a consumer taken away after his market purchase and held in isolation until he decided what price he would accept.

Andy's entry was fairly specific, but contains several items worth thinking about. I've printed out a copy for further study.

Thanks, Don

'Nuther question. Are we

'Nuther question.
Are we talking about the same individual a priori both buying and selling? Or are we talking about an individual who, say, has X tickets and comparing his reservation price for buying (X+1) or selling (X-1) the marginal ticket?

I don't know if that made sense...

Noah, Assume that a consumer

Noah,

Assume that a consumer has just returned to his car in the parking lot after spending $200 for a single ticket. He is intercepted by a television reporter who wants to know how much it would take to get him to part with his single ticket. The consumer honestly replies that he would accept no less than $400 for the ticket. Both the consumer and the reporter know that the purpose of the question is to demonstrate the consumer's feeling about the ticket and the event that it provides admittance to. Neither expects any actual transaction to take place. We are not talking about a ticket scalper.

Regards, Don

What makes you think the

What makes you think the consumer is being honest? He has simply opened the haggling at a fantasy price. If he had a few minutes, and was certain that he could march right back in there and buy another equivalent ticket for $200, I don't think Mr. Reporter would have much trouble buying the ticket off him for $220.

Andy, "What makes you think

Andy,

"What makes you think the consumer is being honest? He has simply opened the haggling at a fantasy price. If he had a few minutes, and was certain that he could march right back in there and buy another equivalent ticket for $200, I don?t think Mr. Reporter would have much trouble buying the ticket off him for $220."

Yes, but that's a different problem and a big if/and. It may be that the reporter could be an undercover policeman trying to enforce an anti-scalping ordinance. Or that the stadium has a ticket limit policy and the consumer has already reached the limit.

If there IS a sale and re-purchase that combination of events is best treated as an independent short-sale and short-covering operation that leaves the consumer with his admission ticket and a few dollars more.

In any case the honesty is simply an insignificant (for me) problem premise that I am employing to restrict the problem scope. I could equally well just say the the data point is what the consumer actually thinks, not what he says.

Regards, Don

But, Don, the data you want

But, Don, the data you want the theory to fit is not what the consumer thinks, but what he said to the reporter. And, isn't Austrian economics about how people Act, not what they think they might do, but don't?

Go to any swap meet (gun show, garage sale, car boot sale, antique store) and you'll see loads of items marked (or unmarked, you have to ask) with a fantasy price that is way above the expected selling price.

Andy, "But, Don, the data

Andy,

"But, Don, the data you want the theory to fit is not what the consumer thinks, but what he said to the reporter. And, isn?t Austrian economics about how people Act, not what they think they might do, but don?t?"

You are correct, but in this case it actually IS what the consumer thinks in terms of a minimum theoretical price that is what we are interested in. The reporter is just an imperfect way to try to get the consumer's value out. We are not looking for an actual (trans)action and we want the consumer's answer without his being influenced by what the state of the market might or might not be.

"Go to any swap meet (gun show, garage sale, car boot sale, antique store) and you?ll see loads of items marked (or unmarked, you have to ask) with a fantasy price that is way above the expected selling price."

Yes but the vendors ARE trying to sell, whereas our consumer just wants to enjoy the game.

Regards, Don