It's Good vs. Evil, #5 vs. #2, Law and Economics Blog vs. Discourse.net (in terms of institutional affiliation), it's the biggest game of the year: Florida State vs. Miami in Tallahassee this Saturday. Thankfully, I will be in attendance to cheer on the Seminoles. What I'm equally thankful for is that I didn't have to pay much for the tickets (about the price of a nice dinner), despite the selling of tickets from anywhere between 200 and 600 dollars. I certainly was not willing to pay this price for a ticket, but now that I have one I am also not willing to sell it at those prices.
I gather Florida State is his alma mater and that he's pumped for the game. If so, his unwillingness to part with the ticket might be an example of Arrow's observation "that interpersonal comparison of utilities has no meaning and, in fact, that there is no meaning relevant to welfare comparisons in the measurability of individual utility." Kenneth Arrow, Social Choice and Individual Values 9 (1963). My sense of the endowment effect literature is that it usually focuses on low cost objects of no particular value to the holder (coffee mugs in the classic experiment), so as to eliminate the problem of interpersonal comparisons of utility. In contrast, Greg may simply subjectively value the ticket at a price higher than the market equlibrium. The lesson may be that there are multiple reasons why subjective WTA and WTP valuations may differ in a given setting, of which the endowment effect is only one possibility. Having said that, the post is well-worth reading as an introduction to the endowment effect.
UPDATE: Greg continues the discussion with a very helpful response. I was particularly stuck by his citation of endowment effect studies where the subjects in fact placed a high personal value on the asset in question. (Query, however, why are the WTA and WTP values placed on hunting rights so much higher for duck hunters than goose hunters? Does duck hunting provide that much more utility?) The studies he cites also raise a further question about endowment effect research, which is the reliability of survey data. Asking people what their WTA and WTP prices are may not be as reliable as observing actual transactions. On the other hand, it may well be useful to survey people who are actually in the business in question rather than staging experiments using undergraduates. The best evidence would come from transactions in actual markets, of course, but that's probably the hardest data to get. Interestingly, the Economist reported a while back on work by U of Md. economist John List:
Instead of using callow students, he went to a real market with traders of varying degrees of experience: a sports-card exchange, one of many such, where Americans trade pictures of their favourite athletes. There, traders dealing in hundreds of cards mix with browsers who might buy only one.
List's paper is available here. In it, he finds:
[W]ithin the group of subjects who have intense trading experience (dealers and experienced nondealers), I find that the endowment effect becomes negligible. ... I find that market experience significantly attenuates the endowment effect. ... These results provide initial evidence consistent with the notion that market experience eliminates market anomalies.
(See also the discussion at Marginal Revolution.)
As Artie Johnson used to say, "very interesting." The take-home policymaking lesson would seem to be that the endowment effect could cause a market failure justifying regulatory intervention, but that some care is necessary before reaching that conclusion. The regulator ought to be confident that (a) the endowment effect is really present; (b) as a result of the endowment effect, an inefficient outcome is proving sticky; (c) that market experience cannot remove the anomaly; and (d) there is a superior regulatory solution.
