Ol' Freeman seems to be in his dotage. From the latest NYRB: A typical example of a Kahneman experiment is the coffee mug experiment, designed to measure a form of bias that he calls the “endowment effect.” The endowment effect is our tendency to value an object more highly when we own it than when someone else owns it. Coffee mugs are intended to be useful as well as elegant, so that people who own them become personally attached to them. A simple version of the experiment has two groups of people, sellers and buyers, picked at random from a population of students. Each seller is given a mug and invited to sell it to a buyer. The buyers are given nothing and are invited to use their own money to buy a mug from a seller. The average prices offered in a typical experiment were: sellers $7.12, buyers $2.87. Because the price gap was so large, few mugs were actually sold. The experiment convincingly demolished the central dogma of classical economics. The central dogma says that in a free market, buyers and sellers will agree on a price that both sides regard as fair. The dogma is true for professional traders trading stocks in a stock market. It is untrue for nonprofessional buyers and sellers because of the endowment effect. Trading that should be profitable to both sides does not occur, because most people do not think like traders. First, whether Freeman accurately portrays the endowment effect and the particular experiment is open to question. Second, there is no way that the above (assuming that Freeman is correctly recounting the experiment) conclusion comes anywhere close to "convincingly demolishing the central dogma of classical economics." Does the "central dogma of classical economics" state that in all conditions, all circumstances, all types of goods the buyer and seller must necessarily come to an agreed-upon purchase price? No, it doesn't. What if I am in the buyer's group? What if I don't drink coffee (or tea)? What if I already have plenty of coffee mugs? What if I just don't want a coffee mug, or another mug? I may not be willing to pay even 10 cents for a mug, even if the mug is worth $5. Nothing has been demolished here, Freeman, per your description. Also, Freeman, in the same article, goes way overboard in his analysis of the case of the missing Freud. It's too bad, really. Dyson used to be a giant. Now he is reduced to phoning in book reviews.
