In this new Econtalk podcast at the Library of Economics and Liberty, I talk with Michael Munger of Duke University about ticket scalping and gifts. Feedback much appreciated. Feel free to use the comments here to talk about any of the ideas in the podcast that you find interesting.
Scalping and Gifts
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Russell,
I enjoyed the downloaded mp3 file, and learned something as well, especially about Aristotle. I suspect his treatment of exchange and use value suffers from dying well before the marginalist revolution.
As it happens, I had just posted a couple of treatments of opportunity cost at catallarchy.net. Summarizing, the main problem with OC is the treatment of prices and money.
Money is an economic good in its own right and therefore subject to the law of diminishing marginal utility. However, for money, the important part is that a dollar becomes more important as you spend it down towards exhaustion. It is untenable to believe that $5 spent out of a cash balance of $6 is equal in value to $5 added to the $6.
Regards, Don
On gifts: recently, my mother was in charge of buying gifts for my younger sister's basketball coaches. She collected $150, but wasn't sure what to do with it. As an economics student, I somewhat jokingly suggested just giving them cash.
She followed my advice, but added a delightful twist. She made two velveteen bags and filled them with Sacagawea dollars totaling $150. The coaches (both grown men with children) were delighted and had fun playing with their piles of "gold coins" at the end-of-season dinner.
William,
Your story reminds me of the Stephen Vincent Benet poem, "Portrait of a Boy." The last lines are:
Hailing their fellows with outrageous names,
The pirates sat and diced. Their eyes were moons.
"Doubloons!" they said. The words crashed gold. "Doubloons!"
The whole poem is here:
http://www.poetry-archive.com/b/portrait_of_a_boy.html
When I took Microecon 101, I heard several examples very similar to this one with the tickets, and I always had a small problem with the conclusion that the "normal but incorrect" response is irrational. My problem is this:
For your average salary man, $600 wouldn't exactly make or break the fiscal year. Your average college student, however, might not feel the same way. If $600 is all I have in my bank, I very well might walk away from the scalpers to buy a radio. But suddenly, I find this envelope, and I have $1200 to my name. I've doubled my net worth, and the $600 for tickets no longer requires the same sacrifice. Plus, who needs two radios?
Even in the case of the salary man, we could at least say he overvalues the thickening of his wallet and starts thinking like a college student. It's still somewhat irrational but not totally off base.
Interesting podcast.
I have the same objection as the previous poster, John O'Conno and Don Lloyd. There is a difference to spending $600 if all you have is $600, and spending $600 if you have $1200.
Regarding gifts. People don't give eachother gifts just to make the gift reciever $20 (or whatever) richer. It's the thought that counts, as they say. Maybe someone gives you a gift that they bought from some other country. Something that is not easily bought in the recievers area. Maybe the giver wants to give a CD because they want to introduce the reciever to that music.
It's about doing something for someone else – making an effort to do something for the reciever. And when giving cash you are spending money, but not much time and effort. I think you hit the nail, when talking about a home made meal versus a catered meal.