Michael Munger on Ticket Scalping and Opportunity Cost

Episode Summary

Executive Summary: Russ Roberts and economist Mike Munger use playful examples to show why opportunity cost matters and why people often ignore it in practice. The conversation explores the “free tickets” puzzle, gift-giving, value in use versus value in exchange, and how markets, eBay, and ticket pricing reveal the gap between economic reasoning and everyday intuition.

Main Topics: Opportunity cost and the “free tickets” experiment (Priority: 5/5): Munger describes a classroom question about finding two free concert tickets after deciding the $600 scalper price was too high. Economists say the tickets should be sold and the cash used elsewhere; most people say go to the concert. Why intuition often conflicts with economic reasoning (Priority: 5/5): The discussion emphasizes that students can recite the definition of opportunity cost yet still fail to apply it, suggesting economics is less intuitive than people assume. Accounting cost vs economic cost (Priority: 4/5): Munger argues many people think like accountants, focusing on out-of-pocket spending rather than foregone alternatives, which helps explain why free tickets feel different from cash. Gift-giving, value in use, and value in exchange (Priority: 4/5): The hosts explore why cash is often considered a bad gift and why gifts that are not what the recipient would buy themselves can be more meaningful, connecting this to Aristotle’s distinction between use and exchange. Secondary markets, eBay, and making opportunity cost visible (Priority: 4/5): They discuss how resale markets make value more concrete by allowing people to easily convert possessions into cash, sharpening awareness of what items are worth. Ticket pricing, rationing, and price discrimination (Priority: 4/5): The conversation turns to Duke basketball and concert tickets, asking why organizations often price below market-clearing levels and how rationing by lines, limits, and fan intensity works.

Key Arguments: People often apply accounting logic rather than economic logic, treating sunk or already-owned items differently from cash even when the opportunity cost is the same. The “free ticket” decision is economically equivalent to having $600 in hand; the rational choice would be to sell the tickets and spend the money on higher-valued alternatives if the concert was not worth $600. Students’ ability to define opportunity cost does not guarantee they understand or use it in decisions. Gift-giving is not just about maximizing recipient utility; meaningful gifts often signal effort, care, and intentional waste, which cash does not communicate as well. Aristotle’s distinction between value in use and value in exchange helps explain why people attach moral or emotional value to goods made or chosen for use rather than for resale. Markets like eBay improve economic understanding by making resale options and market value more obvious, reducing the psychological gap between owning and pricing assets. Ticket sellers often price below market-clearing levels to sell out, attract fanatical supporters, avoid seeming exploitative, and sometimes manage risk, even if this creates scalping opportunities.

Data Points: Concert ticket scalper price: $300 per ticket - The hypothetical Greenway concert tickets being resold after a sellout Total cost for two concert tickets: $600 - The couple’s combined cost to attend the concert via the secondary market Alternative uses of $600: 10 CDs, an MP3 player, a nice stereo, and money left over - Examples used to illustrate the opportunity cost of spending on the concert Beach house assessed value: $1 million - Munger’s example of how homeowners misperceive ownership costs Imputed monthly cost of beach house capital: $5,000 per month - At a 6% return on $1 million, as Munger explains Basketball ticket face value: $40 per ticket - Duke season-ticket face value printed on the tickets Scalped Duke/UNC ticket price: $2,500 per ticket - Observed market price for a high-demand Duke vs. UNC game Total implied cost for two scalped tickets: $5,000 - Munger’s example of what two tickets could cost in the secondary market Cameron Indoor Stadium capacity: 8,000 - The size of Duke’s basketball venue Ticket purchase limit: 4 tickets - A method used to reduce scalping and limit bulk purchases Boston of urgency for student tickets: 3 weeks - Students sometimes camp in tent village for Duke tickets

Pivotal Quotes: "the opportunity cost is whatever you give up the next highest-valued use for any resource that you spend" — Mike Munger: Munger defines the central economic concept after introducing the concert-ticket scenario "finding the two tickets is a whole lot finding an envelope with $600 in it" — Mike Munger: Munger explains the economist’s answer to the free-tickets puzzle "the ideal gift has to be something I would not buy for myself" — Russ Roberts: Roberts and Munger discuss why gifts differ from cash and why that can make them meaningful

Implications: The episode shows that economics often clashes with instinct: people underweight opportunity costs, overvalue ownership, and treat gifts and prices as social signals. Better market design and clearer resale options can make choices more rational and transparent.