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You didn't understand. The point was that the same person would pay $X for good A, but will only sell good A for $B, where $B >> $A.. Let's pretend that if I w
by smanek 18y ago
You didn't understand. The point was that the same person would pay $X for good A, but will only sell good A for $B, where $B >> $A..
Let's pretend that if I want a widget I am willing to pay $1 (but not $2) for it. That means I would prefer to have the widget over $1, but prefer to have $2 over the widget. However, if I have a widget I'm willing to sell it for $3 (but not for $2). That implies that I am would rather have the widget than $2, which is clearly a contradiction with the previous conclusion. This is irrational. (And it violates several of the key assumptions underlying classical economics).
- yummyfajitas 18y agoThe endowment effect is causing very serious problems right now. This is probably the reason why people are unwilling to sell houses at below-bubble prices, even though they would be unwilling to buy at current prices. If someone figures out how to arbitrage this, they will be rich.
- Herring 18y agoYeah I got that. There's a number of possible resolutions, eg selling the widget might be an unnecessary hassle. The problem is we're starting with different sets of premises. As I see it, a rational person considers many factors in the decision to sell good A for $X. The amount he'd pay for it is just one factor & probably the least important one.
- smanek 18y agoIn the real world there are transaction costs - but for most people in the example given (college students selling event tickets) they don't come anywhere near $1000.