The Red Sox won the World Series a few days ago in Boston. During the post game celebration one car was flipped over and destroyed. The owner of that car was Chad Duncan, one of my ex-student’s from a few years ago.
Chad got a lot of press (News video here and Written story here) and he stated that he lost $2,500 because his car was destroyed. A stranger started a fund to reimburse Chad and when I went to donate about 30 hours after the fund was created the fund had $3,500 in pledges.
The interesting economics question is why do people overpay even when they know they are overpaying? Chad is very clear. His cost is $2,500. It makes sense to donate until the fund reaches $2,500. However, donating/paying beyond $2,500 doesn’t seem to make a lot of sense. (Which is why I didn’t chip in. Sorry Chad!)
It is possible people want to over-compensate Chad for the bother of getting a new car, but if they are doing this then they are valuing Chad’s time at a huge hourly rate. What do you think is the reason?