I had an interesting experience today. I had planned to attend the NC State/West Virginia basketball game this afternoon with Shannon Blosser, meeting him at the game and purchasing an extra ticket from his Mountaineer group, which for whatever reason had tickets at the cut rate of $10 apiece. Our rendezvous was prevented, however, due to his having been rendered incommunicado by Alltel (he can make calls, but a glitch prevents him from receiving them; I call it their You can dish it out, but you can’t take it plan).
So there I was, waiting outside as the tipoff came and went, and the number of fans streaming inside slowed to a sparse scattering of latecomers. One of them, a young man in his early 20s, addressed me. “Hey, do you need a ticket?” he asked. I said yes, briefly stating my dilemma. “I have an extra one. It’s a good seat. $35.” I told him no thanks, that I was expecting to pay $10 for a ticket and didn’t have nearly that amount of cash on me (I brought enough for the ticket and a snack). “How about $25?” I told him sorry, that’s way more than I had. I had planned to pay $10.
So the man walked inside, with his extra ticket. I just shook my head. I realize that the tickets are probably $35 at face value, but that had nothing to do with the economic problem we faced. Let’s assume the man had paid $35 for the ticket. That amount is what economists call a sunk cost. The game had already begun. There was no refunding that ticket. He could not retrieve that $35. It was gone.
He might have thought that the ticket was worth $35, but the fact of the matter is, that ticket was worth whatever someone was willing to pay for it ? and as soon as he walked in the door, it was worth zero. And I was the only potential buyer he talked to.
Now I was able to pay (he didn’t ask) up to $14 for that ticket. Given my means at that moment, that’s how much it was worth to me. But because in his mind it wasn’t a fair price for the ticket, he chose not to sell at all. He probably entered the stadium thinking he just avoided being gypped. But the truth of the matter is, he walked away from $14.
He chose nothing when he could have had $14. And that’s because he didn’t understand the economic lesson of ignoring sunk costs, that sunk costs are irrelevant to decisions.
The moral of the story? Economic ignorance is costly. (Well, that and plan for contingencies.)
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Epilogue: About five minutes later, I kid you not, the Locke Foundation’s own Chad Adams strolls up with a buddy and an extra ticket (four, actually) to the swanky lower level of the arena, which he was so kind to give away for free. He not only didn’t take me up on my offer to buy, he didn’t even take me up on my offer of a Goodberry’s treat! What a guy!
