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Sunday, June 04, 2006

Regrets Only, Please

Compare the following:

Situation A: You have won two tickets (that would sell for $50 each) to a concert for free in a radio contest, but today, the day of the show, you find you would rather do something other than attend.

Situation B: You have purchased two tickets to a concert for $50 each, but today, the day of the show, you find you would rather do something other than attend.

Would you be more likely to go to the concert anyway in Situation B than A? I think most people would. And yet it seems to violate "economic rationality" -- the $100 is gone, and therefore shouldn't influence one's choice: "No sense crying over spilled milk."

I've come up with two ways to reconcile the typical choice with economic rationality. Any ideas out there?

EDIT: Fixed the problems Bob noted.

5 comments:

  1. Woody6:07 PM

    I don't understand why anyone would go to a concert if he didn't want to, ie, if no direct benefit could be derived, just sell the tickets!

    But, I suppose, if the question were merely of alternatives, then a person could say, ok I can golf tomorrow (I do not golf, but that's beside the point.), and do the concert thing today. I get more utility doing the two things, though not in the sequence I'd desire. This assumes that the consumer of the concert actually gets some pleasure from attending the concert. If I won two tickets to a pop or rap concert, I'd think of them as only worth as much as they'd fetch in the market. Likewise, I'd buy pop or rap tickets for $50 if I thought I could sell them for more than $50 with no expense or effort.

    I'd love to read your reconciliation.

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  2. What's with the "you have been won" and "you have been purchased"? Is that how they talk in England?

    Okay I'll bite. What's your solution? Let me play the simplistic economist and say that, if it's really true that you would rather not go to the concert even if you paid for the tickets, then you would get more utility if you didn't go to the concert. But I assume you mean something else.

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  3. woody1:07 AM

    You could put guilt at the heart of the problem.

    In the proverbial case where the diner forces himself to wolf down that unwanted slice of pie, even when he knows it's bringing him to the brink of barfdom. He paid for it damnit!

    In a world without doggie bags (which is a quaint expression... more typically a waiter says, "Are you done 'working' on the that? Would you like me to box it up?") the typical diner would probably choose physical discomfort over the psychic pain of wasting the money.

    From birth we're taught to feel guilty through schools, churches and television, inter alia. It's an exceptional person that can look upon that unwanted piece of pie dispassionately.

    I was taught that the bloated diner was irrational, but I think he gets something for his pain: he gets relief from guilt. It's his choice.

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  4. "you find you would rather do something other than attend." is a constant in the situations presented. Are there other variables I am missing?

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  5. 1) Woody wants to sell the tickets: Of course, we'd have to imagine that you can't do so to have the conundrum -- let's say the concert is 100 miles away, and it's only that day that you realize that you have something better to do, and if you drive to sell the tickets you can't do the other thing anyway.
    2) Woody has hit on one of my answers -- the typical economic analysis misses a cost present in Situation B but not in A: The person in B feels regret about "wasting" the money on the tickets if he doesn't go.
    3) The other reconciliation I came up with is that it may serve as a way of disciplining oneself in future decisions to buy tickets: If you always force yourself to go to any event you buy a ticket for, then you will be more cautious about buying tickets, and save money in the long run.

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