Small Praise for the Cameron Crazies: They're Not Complete Idiots

This being the week of the Carolina-Duke game, I'm expected to direct a fair amount of hate Durham's way. And I don't aim to disappoint. But it doesn't have to be all vehemence; I'm a gracious man. So let me kick off the week with the nicest thing I'll say about the Cameron Crazies: They're not complete idiots.

A few years ago, Duke professor Dan Ariely ran an economics experiment on the Cameron Crazies. It's become rather famous, being retold in Ariely's book Predictably Irrational, Moskowitz's and Wertheim's Scorecasting, and numerous places on the web. It's also usually told wrong, so I'll turn it over to Ariely himself:

As Ziv Carmon (a professor at INSEAD) and I listened to the air horn during the campout at Duke in the spring of 1994, we were intrigued by the real-life experiment going on before our eyes. All the students who were camping out wanted passionately to go to the basketball game. They had all camped out for a long time for the privilege. But when the lottery was over, some of them would become ticket owners, while others would not.

The question was this: would the students who had won tickets – who had ownership of tickets – value those tickets more than the students who had not won them even though they all "worked" equally hard to obtain them? On the basis of Jack Knetsch, Dick Thaler, and Daniel Kahneman's research on the "endowment effect," we predicted that when we own something – whether it's a car or a violin, a cat or a basketball ticket – we begin to value it more than other people do.

[...]

That night we got a list of the students who had won the [ticket] lottery and those who hadn't, and we started telephoning. Our first call was to William, a senior majoring in chemistry. William was rather busy. After camping for the previous week, he had a lot of homework and e-mail to catch up on. He was not too happy, either, because after reaching the front of the line, he was still not one of the lucky ones who had won a ticket in the lottery.

"Hi, William," I said. "I understand you didn't get one of the tickets for the final four (sic)."

[...]

William and Joseph were just two of more than 100 students whom we called. In general, the students who did not own a ticket were willing to pay about $170 for one. The price they were willing to pay, as in William' case, was tempered by alternative uses for the money (such as spending it in a sports bar for drinks and food.) Those who owned a ticket, on the other hand, demanded about $2,400 for it. Like Joseph, they justified their price in terms of the importance of the experience and the lifelong memories it would create.

What was really surprising, though, was that in all our phone calls, not a single person was willing to sell a ticket at a price that someone else was willing to pay. What did we have? We had a group of students all hungry for a basketball ticket before the lottery drawing; and then, bang – in an instant after the drawing, they were divided into two groups – ticket owners and non–ticket owners. It was an emotional chasm that was formed, between those who now imagined the glory of the game, and those who imagined what else they could buy with the price of the ticket. And it was an empirical chasm as well – the average selling price (about $2,400) was separated by a factor of about 14 from the average buyer's offer (about $175).

From a rational persective, both the ticket holders and the non–ticket holders should have thought of the game in exactly the same way. After all, the anticipated atmosphere at the game and the enjoyment one could expect from the experience should not depend on winning the lottery. Then how could a random lottery drawing have changed the students' view of the game – and the value of the tickets – so dramatically?

Ah, those silly, irrational Duke students. They can't even get a market to clear! We should take them all around back and have them shot.

Except they're really not being irrational. Did you catch the key part of the experiment? The Final Four. This is the part most overlooked in retellings of the experiment, which just assumes the games are in Cameron. But the fact that it's the Final Four explains the true difference in buyer and seller values – we're looking at two different markets.

(Keep in mind, this analysis assumes the description in Ariely's book is accurate; the paper it comes from (PDF) makes it sound like this was just a phone survey the Friday before the FInal Four, where no students queried actually had tickets.)

Those looking to buy tickets were competing for the 23,674 seats in Charlotte Coliseum in 1994 (give or take). Surprisingly few of them would go to Duke students. Assuming the number was similar to that UNC would distribute three years later, I'd put it around 500 or so. Instead, the majority of the tickets are distributed to coaches and the general public; people, who if they're smart don't really have a strong desire to see Duke cut down the nets. Often, you can get tickets for the game outside the stadium or through brokers for twice or so the face value – not to far removed from the bids students were offering.

The students selling tickets however, basically have two people bidding for their seat – the guy on the phone, presumably also a guy rooting for the Blue Devils, and their own inner Duke fan. The inner Duke fan is going to win that auction every time. But it doesn't mean he's putting an irrational value on the ticket.

How do I know? Well, think about what happens when your team loses in the semifinals. Lots of fans of the losing team cut their losses and sell their tickets – I did in 1997 in Indianapolis. I knew what a fan of a team in the NCAA finals values a ticket at, because I valued it at exactly that price a mere five minutes earlier, before Arizona ended UNC's hopes. And yet I sold at a price much closer to what those ticketless Duke students were bidding. The market cleared.

This isn't to say the effect doesn't exist; many other studies have shown it, just on a smaller scale. Just this particular example of it is a pretty poor one. If anything, it's an example of how the initial price a god is fixed at influences its later prices; NCAA tickets are always underpriced relative to the secondary market, and those who miss out on the initial offering are loath to pay too much more when given the chance. But as amusing as it is to see the Cameron Crazies immortalized as irrational consumers, it's still a bad example, demonstrated on bad people.

Later this week: Less economics and more basketball!