Why a Willingness-to-Pay Premium Cannot be an Opportunity Cost

While responding to comments on my recent post on Opportunity Cost, it eventually became clear that being willing to pay more than an actual ticket price for a second-best choice cannot possibly called an opportunity cost.

I repeat the Marginal Revolution problem statement here:

You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, © $40, or (d) $50.

It is claimed that the proper answer is b), $10, the premium that you would be willing to pay over the actual $40 ticket price.

Breaking down the problem, you will prefer and choose to attend the free Eric Clapton concert over the $40 Bob Dylan concert.

The apparent reasoning behind saying that $10 is the opportunity cost is that you must sacrifice the $10 Dylan 'bargain' if you attend the Clapton concert.

But logic shows that there is no such sacrifice at all, as follows:

If you are willing to pay an extra $10 for the subjectively inferior choice ($40 Dylan), isn't it unavoidable that you would be willing to pay at least $10 more for the superior choice (free Clapton)? The larger the degree of subjective preference between the two concerts, the larger number of extra dollars that you would be willing to pay for the preferred concert (free Clapton).

No sacrifice means no opportunity cost due to the willingness-to-pay premium.

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Don, I think you have an

Don,

I think you have an error regarding the question itself, leading to an erroneous result.

Breaking down the problem, you will prefer and choose to attend the free Eric Clapton concert over the $40 Bob Dylan concert.

The opportunity cost analysis says nothing about which one you actually choose; the choice made is simply a given. Including the information that the Clapton concert is free is tricking to include "choice" in your analysis. The opportunity cost of A is the net value of B when B is the best choice that is not-A (note: avoiding the term "next best"). The cost/benefit of A is irrelevant here.

If Clapton is A (i.e., the person chooses Clapton), then Dylan is B, and the OC of Dylan is (monetized) benefit - cost = $10.

If Dylan is A, then Clapton is B, and we don't have enough information to determine the OC of Clapton.

Don, What is in these

Don,

What is in these benefit packages? Suppose that all three cars have cup holders. Is having a cup holder part of the benefit package of any one of these? Or do you exclude it because they all have it in common? I will suppose that you include it.

And what exactly are we comparing? I think we are comparing, "being in possession of an SUV", and being in possession of each of the other cars. We are comparing these states.

What is part of this state? Remember the overlap. If you are in possession of the SUV, then you are also in possession a cup holder.

But also, if you are in possession of an SUV, then you are not dead. Dead people possess nothing, so if you possess an SUV then you are necessarily alive. So being alive would seem to be part of these benefit packages. It is part of the overlap, same as the cup holder.

Do you exclude being alive from them? On what basis?

If your favorite is the sedan and your second favorite is the SUV, then the opportunity cost of having the Sedan is having the SUV, specifically the total bundle of having the SUV. Part of that bundle is having a cup holder. Therefore part of the opportunity cost of having a Sedan is having a cup holder. However, part of the benefit of having a Sedan is having a cup holder. So it's a wash. Similarly, part of the opportunity cost of having a Sedan is being alive (since that is part of the benefit package of having an SUV).

OK, so let us end this discussion where I suppose that part of the benefit package of having an SUV is having a cup holder. Now we will exclude everything that the two cars have in common, so if they have cup holders in common then we exclude the cup holders.

Suppose that the SUV and the Sedan get identical mileage. Then if you buy the Sedan, the mileage of the SUV is not part of the opportunity cost because it is not part of the benefit package of having an SUV, because we excluded the commonalities.

Make your choice. Do we exclude the commonalities? Do we include them? How many of them do we include? The cup holders? Being alive?

Here's what I would like to suggest: we include the cup holders but exclude being alive. We do this intuitively. Why do we do this? Because we are considering both of these choices against a baseline. The most intuitive baseline in this case is not having any car at all, but still being alive. Since we don't have a car, we don't have a cup holder. So the baseline excludes the cupholder but includes being alive, and so when we talk about the benefit packages of the SUV and the Sedan we are contrasting both those choices against a third choice, which is to have no car.

But the third choice can vary. The background can vary.

Nevertheless, as I pointed out, since all we're doing is including or excluding commonalities, they cancel out once we do the subtraction, the comparison. So it makes no difference. That's why I say it doesn't really matter. It's not a problem.

Constant, Assume both

Constant,

Assume both concerts are free, set aside any question of a willingness-to-pay, and that you choose to attend Clapton.

After you get home, you find out that the Dylan concert was cancelled due to sickness and that everyone was given $10 for their free ticket as compensation if they showed up.

This IS an opportunity cost of $10. Any other opportunity cost of $10 must make sense when compared to this.

Regards, Don

If you are willing to pay an

If you are willing to pay an extra $10 for the subjectively inferior choice ($40 Dylan), isn’t it unavoidable that you would be willing to pay at least $10 more for the superior choice (free Clapton)? The larger the degree of subjective preference between the two concerts, the larger number of extra dollars that you would be willing to pay for the preferred concert (free Clapton).

I'll grant you that.

No sacrifice means no opportunity cost due to the willingness-to-pay premium.

Eh? Come again? How about connecting the dots? I am looking in vain for the words "there was no sacrifice" in the paragraph I granted you, but I fail to find them.

I would really, really love to be able to answer what I *think* is your confusion, but I'm reluctant to an address an argument which you haven't gotten to the point of actually, you know, making.

Constant, Every 'bargain'

Constant,

Every 'bargain' associated with the inferior rejected choice will be replaced with a 'bargain' at least as large but associated with the superior accepted choice.

You will always be willing to pay a larger premium for a preferred alternative.

Regards, Don

The answer is incorrect,

The answer is incorrect, the reasoning fallacious.

Wikipedia's definition is reasonable -

Opportunity cost is a term used in economics to mean the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative.

If Dylan is the most valuable forgone alternative to Clapton (you go to the Clapton concert), then the opportunity cost of the Dylan concert is $-50 (you are saving the $50).

If Clapton is the most valuable forgone alternative to Dylan (you go to the Dylan concert), then the opportunity cost of the Clapton concert is $0 (the ticket cost you nothing).

The example that Wikipedia gives is a better illustration -

... if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.

Of the possibilities in there, the simplest by far is the parking lot vs repaying city debt.

If the annual net income stream from the land as a parking lot (that is the opportunity cost of selling the land and repaying debt) is greater than the interest costs of the debt that could be repaid (that is the opportunity cost of repaying the loans then the city would be better off with the land as a carpark. Obviously the converse.

So -

Alt 1 - carpark
Discounted cost of carpark development - $3m
Interest on loans that could be repaid (10 years)- $5m

Opportunity cost of carpark $8m

Alt 2 - repay loans
Sale of land repays $8.3m of debt (interest on loans 6%)

Interest saved $5m
Net income stream forgone (Net return 3% on capital) for ten years $3.3m

Opportunity cost of repaying loans $8.3m

As estimation of carpark income stream does not include inflationary effects, I would choose the carpark. At worst case (zero inflation) it shows a marginal return on opportunity cost. Oh, to explain - the value of the land is not an opportunity cost as it is constant in both alternatives. If the best alternative were to buy land at another location for a project then the land values would enter the equation. As it stands we are looking at an immediate transfer of capital to debt repayment.

Personally the original example is a non sequitur. There is no question, Clapton is the equal of Dylan as a blues guitarist and a far better singer. ;-D

Don, That still does not

Don,

That still does not answer the question. Of course you prefer your preferred choice over your non-preferred choice. That does not mean that you are not making a sacrifice. It means only that the benefit is greater than the sacrifice. It means that benefit is greater than cost. It does not mean that there is no cost.

The benefit of free Clapton is (say) $11. The opportunity cost of $40 Dylan is $10. Therefore you will see Clapton.

To restate in your (Don's)

To restate in your (Don's) terms, you would be willing to pay (say) an $11 premium for Clapton, and a $10 premium for Dylan.

The opportunity cost is still $10.

From my vantage, you are confusing the fact that the benefit is greater than the cost, with the claim that there is no cost.

Constant, The benefit of

Constant,

The benefit of free Clapton is (say) $11. The opportunity cost of $40 Dylan is $10. Therefore you will see Clapton.

No, the benefit of a free Clapton is its entertainment value to you. This is preferred to the entertainment value of Dylan less the $40 ticket cost.

Using your number, you would be willing to pay $11 more for Clapton and $10 more for Dylan.

If both were free and you still preferred Clapton, you would be willing to pay up to $50 for a Dylan ticket (given) and you would be willing to pay at least $50 for a Clapton ticket, depending on the intensity of your preference.

Regards, Don

Crossing comments.

No, the benefit of a free

No, the benefit of a free Clapton is its entertainment value to you.

So then the issue really is that you don't want to convert that to a dollar amount. It really has nothing to do with what you were saying above, but with that reluctance to convert.

Constant, If both were free,

Constant,

If both were free, the opportunity cost of the Clapton concert is the entertainment value of the Dylan concert.

Whatever you might have been willing to pay for the Dylan concert would be exceeded by a willingness to pay for the Clapton concert.

Regards, Don

Constant, So then the issue

Constant,

So then the issue really is that you don’t want to convert that to a dollar amount. It really has nothing to do with what you were saying above, but with that reluctance to convert.

Yes, sort of, but look at the logic of your apparent position.

If you are willing to pay nothing extra for Dylan, whether or not it is free or whether it has a ticket price of $40, you would apparently say that there is no opportunity cost, valuing the actual missed performance at nil.

Regards, Don

No sacrifice means no

No sacrifice means no opportunity cost.

But something is sacrificed - paying-$40-for-and-attending-the-Dylan-concert. And the value to you of what was sacrificed is $10.

The value to you of something is what you would have been willing to pay for it (were it necessary, and were it not for the Clapton choice). You would have been willing to pay $10 in order to pay-$40-for-and-attend-the-Dylan-concert.

Let us simplify the problem, as you already have before in the discussion. Suppose the Dylan concert is free and so is the Clapton concert. Suppose you would have been willing to pay $10 for the Dylan concert (were it not for the Clapton concert). Your opportunity cost of going to the Clapton concert is going to the Dylan concert. The value to you of going to the Dylan concert, i.e., what you would have been willing to pay, had it not been for the Clapton concert, is $10. The value to you of your opportunity cost is $10.

After you get home, you find out that the Dylan concert was cancelled due to sickness and that everyone was given $10 for their free ticket as compensation if they showed up.

This IS an opportunity cost of $10. Any other opportunity cost of $10 must make sense when compared to this.

Disregarding transaction cost, you would have been willing to pay up to $10 to receive $10. Your opportunity cost here is $10. In both cases it is $10 because in both cases you would have been willing to pay $10.

If you are willing to pay

If you are willing to pay nothing extra for Dylan, whether or not it is free or whether it has a ticket price of $40, you would apparently say that there is no opportunity cost, valuing the actual missed performance at nil.

Yes. I have to add everything together that comes out of that option. You gave me what I needed to add together: the opportunity cose is the entertainment value of Dylan less the $40 ticket cost. The entertainment value of Dylan is worth $50, so counted in terms of dollars the opportunity cost is $50 less $40, i.e., $10.

And if I just barely am willing to pay $40 to see Dylan, then even the smallest gift - if it required that I missed the Dylan concert - would be preferable. If an arbitrarily small gift is preferable to paying and attending a Dylan concert, then the value of the latter is zero. That is, if X is a nonnegative number, and if an arbitrarily small number Y is larger than X, then X must be zero. That is, if someone offers me 5 cents not to buy a Dylan ticket, and if I accept, then the value of the opportunity cost of accepting that 5 cents is less than 5 cents.

Cornelius, The opportunity

Cornelius,

The opportunity cost analysis says nothing about which one you actually choose; the choice made is simply a given. Including the information that the Clapton concert is free is tricking to include “choice” in your analysis. The opportunity cost of A is the net value of B when B is the best choice that is not-A (note: avoiding the term “next best"). The cost/benefit of A is irrelevant here.

Yes, I agree with all this.

My point is that if you say you are willing to pay as much as $X extra for the rejected, lower ranked alternative, then logic demands that you would be willing to pay at least as much as $X extra for the accepted, higher ranked alternative.

While I don't accept that the $X extra has anything to do with OC, if you do believe that it does, I am trying to point out that this apparent dollar advantage is not sacrificed with choice, but reappears at least as strongly now associated with the chosen alternative even if it is not explicitly claimed. No sacrifice means no opportunity cost.

Regards, Don

Hopeless. Nonsensical.

Hopeless. Nonsensical. Muddle headed. Hogswill.

Totally misconceived illustration.
This is not "economics".

You are whistling in the wind. Your understanding of what is involved with opportunity cost is zero. Opportunity cost is a tool that assists an investment decision. It can not tell you which is the better concert. It will not predict value for money.

What you are trying to do is calculate the value of your preference. Being a subjective value, there is no answer to that; there can not be.

Your addition of preference as a factor shows your total lack of understanding of what opportunity cost is about.

Mixing a subjective "value" and economic principle is just plain wrong. If you bring subjective value (whose concert I would prefer to attend) to the table, then economic principles take a back seat.

Probligo, You are whistling

Probligo,

You are whistling in the wind. Your understanding of what is involved with opportunity cost is zero. Opportunity cost is a tool that assists an investment decision. It can not tell you which is the better concert. It will not predict value for money.

I am in complete agreement with you that there is an opportunity cost that is involved with investments and money, exclusively, as you say.

But there is also a distinct opportunity cost involved with subjective choice and preference. This is the one that in my view is most closely associated with economic theory. I understand that your view of economics is different than mine.

Regards, Don

Constant, Let us simplify

Constant,

Let us simplify the problem, as you already have before in the discussion. Suppose the Dylan concert is free and so is the Clapton concert. Suppose you would have been willing to pay $10 for the Dylan concert (were it not for the Clapton concert). Your opportunity cost of going to the Clapton concert is going to the Dylan concert. The value to you of going to the Dylan concert, i.e., what you would have been willing to pay, had it not been for the Clapton concert, is $10. The value to you of your opportunity cost is $10.

No, the value is not willingness to pay.

I believe that there are multiple reasons for this, but, at the moment, I am only prepared to talk about one of the reasons.

If you are willing to pay $20,000 for a new SUV (your choice), is the value $20,000? Not unless it doesn't matter to you that your present car is a 2005 model with 8000 miles or that it may be a 1991 model with 150,000 miles.

Willingness to pay is a purposeful exchange of one state of being for another. What you are willing to give up to make this exchange should depend on your present state. The more unsatisfactory your present state, the more you would be expected to be willing to give up.

Regards, Don

Don, Yes, I agree with all

Don,

Yes, I agree with all this.

Good.

My point is that if you say you are willing to pay as much as $X extra for the rejected, lower ranked alternative, then logic demands that you would be willing to pay at least as much as $X extra for the accepted, higher ranked alternative.

I do not follow your reasoning. In fact, I'm not entirely sure what point you are trying to make. When A is preferable to B, that there is a $10 consumer-surplus in B does not mean there is at least a $10 consumer-surplus in A.

Hmm... or am I wrong on

Hmm... or am I wrong on that?

Don, How do you

Don,

How do you differentiate "willingness to pay" from subjective marginal value?

Don, You really must reply

Don,

You really must reply more quickly. We are living in the internet age after all.

Willingness to pay is a

Willingness to pay is a purposeful exchange of one state of being for another.

Yes.

What you are willing to give up to make this exchange should depend on your present state.

Yes.

The more unsatisfactory your present state, the more you would be expected to be willing to give up.

Yes.

If you are willing to pay $20,000 for a new SUV (your choice), is the value $20,000?

Yes, because that is how much you are willing to give up to exchange your present state with the new one.

Not unless it doesn’t matter to you that your present car is a 2005 model with 8000 miles or that it may be a 1991 model with 150,000 miles.

Of course it matters, *and* it figures into the $20,000. The worse my current car, the more I am willing to pay for a given new car to replace it.

Cornelius, I do not follow

Cornelius,

I do not follow your reasoning. In fact, I’m not entirely sure what point you are trying to make. When A is preferable to B, that there is a $10 consumer-surplus in B does not mean there is at least a $10 consumer-surplus in A.

We have A and B to compare at some actual fixed prices, possibly including free. If I am willing to pay $X more for B than I actually do, I must be willing to pay at least $X more for A as well since I value it more highly at the given original fixed prices.

Regards, Don

Yeah, Don, why haven't you

Yeah, Don, why haven't you replied yet to my comment of 3:45 pm? You on the toilet or something? That shouldn't stop you, that's what laptops are for. Get with the program.

Constant, Of course it

Constant,

Of course it matters, and it figures into the $20,000. The worse my current car, the more I am willing to pay for a given new car to replace it.

But then we have the question of whether the $20,000 reflects the value of the new car or the old car. (it's a combination of both)

For the purposes of opportunity cost, it is only the value of the second best, rejected choice that counts. It doesn't make sense to allow a random collection of third thru nth choices to affect the opportunity cost.

Assume free concerts, but add a third one in which Dylan Jr. is performing. The opportunity cost of the Clapton concert is the subjective entertainment value of the Dylan concert. It should not depend on how good or bad Dylon Jr., the third choice is.

Regards, Don

Cornelius, How do you

Cornelius,

How do you differentiate “willingness to pay” from subjective marginal value?

'Willingness to pay' is the specific amount of dollars (or cookies, for that matter) to be given up to get some good so that your overall state of being is effectively unchanged. Giving up less than the specific amount would leave you in a preferred overall state.

"Subjective marginal value' is the position of the last unit of a good possessed on your individual subjective value scale.

Regards, Don

Assume free concerts, but

Assume free concerts, but add a third one in which Dylan Jr. is performing. The opportunity cost of the Clapton concert is the subjective entertainment value of the Dylan concert. It should not depend on how good or bad Dylon Jr., the third choice is.

Yes it should. Value is relative. It can only ever be relative. It concerns choice. There is no absolute value. The value of something *always* concerns a comparison of it with something else. Value is about what you would choose. Without choice, there is no place for the concept of value.

If you choose the Dylan concert, you are choosing it over alternatives. Suppose you live in hell (work on Earth but live in hell), and a Dylan concert will give you respite from the fires of hell for a few hours one evening. What is the subjective value to you of the Dylan concert? It *must* of course include how much you value not roasting in hell for the duration of the concert. Surely the feeling of not having your skin on fire is something you treasure. But that is a significant part of going to the Dylan concert *only* because the *alternative* is roasting in hell. So the alternative cannot be removed from consideration.

Don, when you have decided

Don, when you have decided your "opportunity cost" based upon "personal preference" I will let you know what I think of it.

No. Here y'go. Right now. This is how futile your attempts are -

1. I would not pay $50, $40, or the taxi fare to a Dylan concert. He was great in the '60's. He is well past his best now. Opportunity cost infinite because anything else would be better.

2. I would not pay $50, $40, or even the taxi fare to a Clapton concert if NZ was playing Australia at rugby the same evening; if there was a concert of Renaissance music being given the same week at $200; or if Fat Freddys Drop were playing a bar gig anywhere within 100 miles. Opportunity cost anything from $10 (the price of a couple beers) to $200.

3. If Clapton or Dylan were playing in Auckland I would use the money to buy CD's rather than go to the concert. Opportunity cost $15 per CD. I might end up buying 10, not all or necessarily any Dylan or Clapton.

In other words, personal preference is not measurable in the way that you are trying to achieve. It is no more than a futile attempt to rationalise the irrational.

Probligo, In other words,

Probligo,

In other words, personal preference is not measurable in the way that you are trying to achieve. It is no more than a futile attempt to rationalise the irrational.

You may have confused my view with the problem. No measurement is possible, Preferences and subjective values are only ranked on an individual subjective value scale.

Regards, Don

Constant, Yes it should.

Constant,

Yes it should. Value is relative. It can only ever be relative. It concerns choice. There is no absolute value. The value of something always concerns a comparison of it with something else. Value is about what you would choose. Without choice, there is no place for the concept of value.

I agree with all this, but I think that it has to be carefully applied.

You're driving a new car that you bought a month ago.

It was the one you liked best of all the cars on the dealer's lot.

You picked out the only red one out of 100 virtually identical new vehicles.

Would you be better or worse off today if the dealer's lot had contained only your car, an identical blue one, and a used yellow cab?

You've ended up with the same car, and the opportunity cost was the identical blue one in both cases.

I don't see why substituting a used yellow cab for 98 more unselected new cars on the lot makes any difference in the result.

Regards, Don

Constant, All we care about

Constant,

All we care about is how much better the red one (your favorite) than the blue one (your second choice).

No, this has no relevance.

But no matter, your comment has triggered what I think (hope) will be a nearly complete and consistent story as follows:

You visit the auto dealer. You are going to choose between a sedan, an SUV and a pickup truck.

Each of these vehicles has both advantages and disadvantages, both in general and with respect to your particular context and subjective preferences.

They all vary in price, gas mileage, passenger capacity, engine, drive train and type, comfort, amenities, resale value, and as many other things as you can imagine as being of significance to you.

Your job is to rank the three vehicles in the order of perceived benefit to you, one thru three. The perceived benefits would be called net benefits for each vehicle except that there is no possible way to add and subtract the advantages and disadvantages because no common units exist. From here on, we will refer to 'benefit packages' because we cannot use 'net benefits' and because both advantages and disadvantages must both be taken into account. 'Benefit bundles' would be another possibility.

If you judge that the vehicle with the preferred benefit package is the sedan, then that is the vehicle that you will buy.

If you rank the benefit package of the SUV higher than the benefit package of the pickup truck, then the perceived benefit package of the SUV IS the opportunity cost of buying the sedan and which you will have thus sacrificed.

The third ranked perceived benefit package of the pickup truck, large or small, has no effect on the opportunity cost.

Perceived benefit packages are the key, not value.

Regards, Don

Don, Responding to 5:27

Don,

Responding to 5:27 pm.

It makes no difference.

All we care about is how much better the red one (your favorite) than the blue one (your second choice).

Let's look at the version with the red car (A), blue car (B), and yellow cab (X). Opportunity cost is how much better the blue one is than yellow cab. Benefit is how much better the red one is than the yellow cab.

When you take the difference, the yellow cab drops out. (A - X) - (B - X) is A - B.

It doesn't matter what we use as the baseline. The baseline might be no car (call this Y). Switching from a state of having no car to a state of having a blue car is B - Y. Switching from a state of having no car to a state of having a red car is A - Y. The opportunity cost of switching from a state of having no car to a state of having a red car is switching from a state of having no car to a state of having a blue car. That is, the opportunity cost of change (A - Y) is (B - Y).

The opportunity cost of change (A - X) is (B - X).

I don't really see how else to think of it, and I don't think it really introduces a problem (or, alternatively, if it does introduce a problem then that may be an interesting wrinkle and not merely an artifact of my way of thinking of it).

I find myself trapped. I can't understand value except as a relative concept, concerning choice. So I need to define the background before I can define the opportunity whose value we are considering.

But I don't think it creates a problem, because they seem to cancel out rather neatly.

Let's look at the original problem briefly, just one aspect of it. Supposedly the person would be willing to pay $50 to see a Dylan concert. Well, obviously this depends on the background of what other options he has. Change those other options and you change how much he's willing to pay to see the Dylan concert. If Dylan Jr. comes around and starts giving free concerts, then the person might subsequently be willing to pay only $30 to see a Dylan concert. So the background of other choices is already a part of willingness to pay. I don't see how anyone can deny it. And I for one am not much troubled by it, because of the cancellation when you subtract.

Constant, What is in these

Constant,

What is in these benefit packages? Suppose that all three cars have cup holders. Is having a cup holder part of the benefit package of any one of these? Or do you exclude it because they all have it in common? I will suppose that you include it.

Everything, both plus and minus, both common and not, is included if your perception of a benefit package is sensitive to it. A benefit is what you say it is to you, not what the maker calls a benefit.

In this story, I think that it is adequate to restrict consideration to the vehicles alone and their perceived benefit packages, and leave the overall state in the background.

Regards, Don

Dave, You are right in one

Dave,

You are right in one thing - the fact that the ticket is non-transferrable is important.

What is lost sight of in all of this raruraru, and the previous futile debate on the same topic, is that there has to be some substance to the cost. :idea: All of this prating about pop-stars and red or blue SUV's and yellow taxis is completely non-sensical. It does nothing more than take up the bandwidth.

Bluntly -

1. One alternative has no cost. The ticket was given to you for nothing, and you can not sell it. Value = 0. Zero.

2. There is a lot of silly, irrational, obfuscation about "preferences". That is all that is - an attempt to muddy the water. "Preference" does not, can not, come into the decision; it is an unmeasurable. It is not an "economic" factor at all.

"Preference" is the excuse you use when you ignore all of the evidence and make a bad decision. :wall:

Lord! If the highly adept

Lord! If the highly adept logicians at Cattalarchy can’t agree on this one, there is no hope for the average Joe.
Here is the way I see it. The fact that you get a free ticket to see Eric Clapton which you would pay x $ for in the market normally means that you are x $ richer. The fact that it is non-transferable is what makes the problem difficult. Since the ticket is defined so as to have no market value the question becomes what is the value the ticket for you, which is now subjective. What if it were a Barry Manlow ticket? It might be worth more or less depending on your music preferences. If you think an Eric Clapton ticket is worth $40 then you are that much richer. If you think the Manlow ticket is worth $10.00, you are that much richer.

There is no way you can be poorer. If the ticket is worth less than $10 to you, you would probably discard it, since you would miss the Dylan concert and the $10s you value the Manlow ticket would not offset this loss for you. The fact that the Dylan ticket is $10 lower than you would normally be willing to pay does affect the value that you would put on the other ticket under the conditions of the problem. You simply have to add that to the cost of using the Clapton or Manlow ticket or if you, in prohibition of the rules, sold the ticket you would add $10 to the amount of benefit you are getting by selling the free ticket rather than attending the concert. This would make the opportunity cost of seeing the Clapton concert $10.00, offsetting by this much the value of the free ticket.

This all sounds complicated but the average dolt makes these kinds of calculation all the time. Take for example a similar problem in real life. Say the government gave you food stamps and allowed you to buy broccoli, oat meal and the like but not beer. You could sell or barter your food stamps to help you obtain beer. If you played by the rules you would turn in your food stamps if you are tired of broccoli. The opportunity cost of being honest with the government is that you have to pay more for your beer, and nobody is that stupid.