Question

Marvin visits his aunt and uncle, who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during Marvin's visit. An online broker has a ticket for sale in Section 212 of the arena where the game will be played, but the price, \(\$ 75,\) is more than Marvin is willing to pay. From another online ticket broker he buys a ticket for \(\$ 50\) for a seat in Section 212 of the arena. On the day of the game, a friend of Marvin's uncle offers to pay Marvin \(\$ 75\) for his ticket. He declines the offer. How can Marvin's refusal to sell his ticket be explained?

Short answer

Marvin's refusal to sell his ticket despite the profitable offer can be explained by considering the perceived utility he might gain from watching the game, his internal reference prices, the importance and value he attributed to the game experience and possible sentimental values. These factors outweigh the potential monetary profit for him.

Step-by-step solution

Identify the Situation

Marvin buys a ticket for the basketball game at a price of \$50. Later, he is offered \$75 for that same ticket by his uncle's friend, effectively offering him an opportunity to make a \$25 profit. Despite this, Marvin declines the offer.

Recognize the Factors

Recognize the factors that influence Marvin's decision. He could be motivated to watch the game, value the experience, or have sentimental reasons like bonding with his uncle.

Analyze the Factors

Analyze each factor: The value of experience- Attending this game has a value for Marvin which cannot be covered by profit. He obtains utility out of watching the game which is greater than \$25. The sentimental value- Going to a game with his uncle might also hold a sentimental value which can't be expressed in terms of money.

Conclude

Wrap up the analysis. We get Marvin's refusal to sell his ticket can be explained by the value he places on the game experience and the sentimental value associated with it. His perceived utility from attending the match outweighs the monetary gain he could get by selling the ticket.

Key concepts

Marginal Utility

When reflecting on economic decision-making, one key idea is that of 'marginal utility'. This term describes the additional satisfaction or pleasure a person gains from consuming or using one more unit of a good or service. Imagine you're at a basketball game, relishing every moment, and someone offers to buy your prized seat. You might refuse because each additional minute at that game imparts a joy that no amount of money seemingly could replace. For Marvin, the pleasure of staying for the entire game may have been significantly high, and the marginal utility of the game's remaining time could surpass the satisfaction of earning an extra \(25. This reflects Marvin's personalized valuation of joy over profit and ties closely to why experiences are often prized over material gains.

Understanding through Marvin's Lens

Let's illustrate Marvin's situation: He purchased a ticket for \)50, and the pleasure derived from attending the game is worth more than merely making a $25 profit by selling the ticket. The marginal utility of Marvin’s game experience is fundamentally higher than the marginal utility of the monetary gain offered.

Opportunity Cost

Closely linked to economic decision-making is the concept of 'opportunity cost,' which represents the value of the next best alternative forgone as the result of making a decision. It's not merely about the money you might gain or lose, but about what you're potentially giving up. In Marvin’s case, the opportunity cost of selling his ticket would be missing out on a potentially memorable basketball game. For Marvin, the sheer enjoyment of witnessing the game live and the possibility of creating lasting memories with loved ones outweighs the immediate financial gain.

Calculating Opportunity Cost

Even if Marvin's decision appears to eschew profit, it underscores a core principle: opportunity cost isn't always quantifiable in dollars and cents. Sometimes, the real cost is intangible, like lost time, experiences, or emotional fulfillment. This makes the concept not solely an economic one but also deeply psychological.

Subjective Value

At the heart of these economic decisions is the concept of 'subjective value', where the true worth of an item varies based on individual preferences, emotions, and personal circumstances. This is why two people can look at the same object or situation and place a different value on it. For example, a basketball fan may value a game ticket highly due to personal enthusiasm for the sport, whilst someone indifferent to basketball may not perceive the same value.

Marvin's Subjective Valuation

Marvin's choice reflects his subjective valuation of the basketball game. The ticket's worth to him is not solely established by its market price but also by the happiness and experience he anticipates from attending. Marvin’s valuation hinges on personal factors such as his emotional connection to the event, the social experience with his uncle, or his passion for the game. These nuances of subjective value showcase the complexity behind seemingly straightforward economic decisions and remind us that value is, after all, in the eye of the beholder.