Taylor Swift tickets and the endowment effect

The Wall Street Journal reported last month (paywalled, but see here for an alternative):

Taylor Swift ended the European leg of her Eras tour on Tuesday at London’s Wembley Stadium, delighting nearly 100,000 cheering “Swifties”—but leaving many who couldn’t snag a ticket disappointed. One reason: the failure of the secondary market in tickets. Swifties have the same mental biases as the rest of us, making them reluctant to sell even at eye-watering prices.

Markets work on the basis of supply and demand setting a price. If there is more demand than supply, the price rises until fewer people are willing to buy and more are willing to sell. The basic problem is that Swifties mostly aren’t willing to sell, so the price soars until demand is destroyed—hitting well over $1,000 for many tickets...

I have firsthand experience: My eldest offspring snagged tickets months ago to take my besequinned wife (but not me) to the latest Eras concert. By this week the tickets were changing hands at more than eight times face value, and both agreed they wouldn’t buy them at such a high price.

Given they wouldn’t buy at this price they ought to be, on traditional economic assumptions, willing sellers. But both dismissed the idea out of hand—and not merely because trading tickets is trickier than trading shares. There probably would be some ludicrous price at which they would have parted with the tickets, but even a quick profit of eight times their outlay in a matter of months wouldn’t do it.

The WSJ rightly offers up loss aversion and the endowment effect as explanations for this behaviour. Loss aversion is the idea that decision-makers value losses much more than otherwise-equivalent gains. The pain of giving something up is worth much more than the pleasure of gaining that same thing. One consequence of loss aversion is the endowment effect. Since giving something up makes people very unhappy (because they are loss averse), people prefer to hold onto the things that they already have. That means that, when a person owns something, like a Taylor Swift ticket, they have to be given much more to compensate them for giving it up than what they would have been willing to pay to get it in the first place.

This applies to lots of things, not just Taylor Swift tickets (although, honestly, Taylor Swift tickets was the exact example that I used in my ECONS102 class earlier this trimester). The original research example that described endowment effects, by Daniel Kahneman, Jack Knetsch, and Richard Thaler, used free coffee mugs to demonstrate the effect. People given a free coffee mug were generally unwilling to exchange it for a pen, and people given a free pen were generally unwilling to exchange it for a coffee mug.

Returning to concert tickets, tickets to the Oasis reunion tour sold out fairly quickly this week - I bet those who have those tickets also wouldn't be willing to give them up cheaply. A further interesting implication of the endowment effect arises in the case of Oasis tickets, since according to this tweet from the band's official X account:

Tickets can ONLY be resold, at face value, via @TicketmasterUK and @Twickets.

If the endowment effect applies, few ticket-holders will be willing to part with their tickets at face value. These secondary markets are unlikely to help many people who originally missed out to secure tickets. I guess we will see.

[HT: Cyril Morong at The Dangerous Economist, for the WSJ article]