Ed Sheeran is easily the biggest pop sensation in the world at the moment. He is the most streamed artist on Spotify and currently dominating charts around the globe and tickets to his concerts are selling out like hot cakes. So, would you pay two quid to go to his concerts? Well according to an experiment conducted by Australian comedy duo, no, the average person wouldn’t. Why? Adverse selection. Adverse selection is an economic phenomenon that occurs when one party involved in a transaction is given insufficient information about the product and the transaction produces unexpected results.
The idea of the experiment was very simple.Ed Sheeran kindly offered to play a snippet of one of his songs to anyone who in exchange would pay two Australian dollars to see him. However, Ed Sheeran didn’t set up shop right there on the high street. No, he was behind a curtain inside a shop away from view of the public and the members of the comedy duo had to ask people walking by on the street would they come be willing to pay the small fee to see the Ed Sheeran peep show with a real-life Ed Sheeran just a few meters away. Of course, no one believed them and as a result it was only after two and a half hours that one couple finally took a chance and paid the fee and went inside and got the shock of their lives when Ed Sheeran actually appeared from behind the very sketchy looking curtain and performed a few seconds of his hit song “Thinking Out Loud”.
If you look at the situation without context it seems very unusual that people wouldn’t pay this very small fee in order to see one of the world’s biggest superstars perform. A service which would usually cost well over this price. Economics helps explain why this happened though. The reason people wouldn’t engage in the transaction is because of the signals they received when presented with it. The extremely low fee charged infers that there is some sort of fault with the product or service being provided and this leads people to the conclusion that they shouldn’t engage in the transaction because they won’t receive a quality good or service from it so the transaction produces unexpected results. Adverse selection is the same reason you wouldn’t buy a car that was being sold for ten euro or a pint that was being sold for 5 cents.
The video can be seen in the following link:
by Daragh O’Leary