August 23, 2009

GOT MINE, GET YOURS:

The NHS: Britain and America are both right (Daniel Finkelstein, 8/19/09, Times of London)

If you want to understand the rights and wrongs of the NHS argument, you need to start with this. Duke University in North Carolina has a very small basketball stadium and a large number of students who want to attend matches. To solve the problem of ticket allocation, an elaborate system has been developed.

Roughly a week before the game, students pitch tents in front of the stadium. If they want a ticket they cannot leave. At random intervals a horn is sounded at the box office, and those who do not respond within five minutes are removed from the waiting list. There’s more. After almost a week of camping the students at the front of the queue are still not guaranteed a ticket. They merely get a lottery number and have to hope that they will win admittance.

In 1994 the behavioural economists Dan Ariely and Ziv Carmon decided to exploit this ritual to conduct an experiment. They called up students who had camped out but failed to obtain a ticket, offered them admittance and negotiated a price. On average, respondents were willing to pay $175.

Next they called up the lucky winners and made bids to buy a ticket. The average price demanded? A huge $2,400. Remember that both sets of students wanted the tickets badly in the first place. The value they both put on admittance should have been, at least roughly, the same. Instead they were separated by a factor of about 14.

Ariely and Carmon present this finding as corroboration of what is known as the endowment effect. Once someone owns something, once it is theirs, they value it more. This is closely allied to another effect beloved of behavioural economists — loss aversion. People much prefer avoiding losses to making gains.


At the end of the day, too few American voters are uninsured to shake up the system.

Posted by Orrin Judd at August 23, 2009 7:53 AM
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