Preferences and Utility: How Economists Model What You Want

You are a student at Cornell University in the autumn of 1990. A researcher hands you a coffee mug, the kind with a university logo printed on the side. It is yours now, she explains. You can keep it or sell it. She asks you to write down the minimum price you would accept to give it up.

The mug has been sitting in front of you for about two minutes. You have never seen it before today. You did not choose it, shop for it, or save up for it. It was simply placed in your hands by a stranger in a beige classroom.

And yet something happens the moment it becomes yours.

You turn it over. You feel the weight of it. You think, briefly, about where it might sit in your apartment. The researcher is watching. Other students around you are writing down their numbers. What do you write?

This was not a casual classroom exercise. The researchers running it were Daniel Kahneman, Jack Knetsch, and Richard Thaler, three economists whose work would collectively reshape how the discipline thinks about human decision-making. Kahneman would go on to win the Nobel Prize in Economics in 2002. Thaler would win it in 2017. The mug experiment, published in the Journal of Political Economy in 1990, became one of the most cited studies in behavioral economics.

The setup was precise. Students were randomly divided into two groups. One group received mugs and were asked the minimum they would accept to sell them. The other group received nothing and were asked the maximum they would pay to buy an identical mug. Both groups were looking at the same object. Both groups were Cornell students with roughly similar budgets and tastes.

According to standard economic theory, this should produce similar numbers. If you would pay up to $5 for a mug you do not own, you should also be willing to sell a mug you do own for anything above $5. Ownership, in theory, should not change the fundamental value of the object to you.

But the researchers suspected it would. And they were right.