Monday, March 1

Irrationality and hockey tickets

Vancouver newspaper The Province reported over the weekend that despite astronomically high market prices for tickets to the Olympic men's hockey final, many people were planning to hang on to their tickets.

This is somewhat mind-boggling. Olympic tickets were originally sold in a lottery, which means that the people who originally bought the tickets from the lottery paid far less than the market value the morning of the big game (in the neighbourhood of $3,000 per ticket). Personally, if I had a pair of tickets that someone was willing to pay $6,000 for, I'd sell. I love hockey (and it was a great game). But I could do a lot more with $6,000 than with a pair of Olympic final tickets.

The Province article brought to mind Predictably Irrational, by management professor Dan Ariely, in which he describes one of his studies on people's willingness to pay for tickets. In a nutshell, the study finds that people who get tickets need to be paid a heck of a lot more for their ticket to part with it than what they'd be willing to pay for a ticket if they didn't have one.

In other words, loss aversion has a big effect. Loss aversion refers to our tendency to treat losses with greater concern than similar-sized gains. Both buyers and sellers think about what they forego in determining the price of a ticket. For me, I think about the $6,000 I'd lose by buying a ticket, which seems excessive when I can watch the game on TV for free. But for sellers, they think about the once-in-a-lifetime experience they'd miss out on by selling.

"Selling prices were very high because … forgoing a ticket was very undesirable … due to the perceived uniqueness and popularity of the games and the scarcity of such tickets," Ariely's study found. "However, buying prices were fairly low due to the low list price of such tickets and the low cost of salient alternatives (e.g., a video, attending a play, dining out, etc.)."