Subjective utility paradox in a classic gift economy cycle with loss aversion


Decision research is full of fun paradoxes.  Here’s one I came up with the other day. I’d love to know if it’s already been explored.

  1. Imagine a group of people trading Kahneman’s coffee cup amongst themselves.
  2. If you can require that it will keep being traded, loss aversion predicts that it’ll become more valuable over time, as everyone sells it for more than they got it.
  3. Connect those people in a ring and as the cup gets traded around its value will diverge. It will become invaluable.
Kula bracelet


  • This could be a mechanism for things transitioning from having economic to cultural value, a counter-trend to the cultural->economic trend of Israeli-daycare-style crowding out.
  • The cup of course doesn’t actually have to attain infinite value for this model to be interesting.  If it increases in value at all over several people, then that’s evidence for the mechanism.
  • Step 2 at least, and probably 3, aren’t giant leaps. Who would know if this argument has been made before?
  • There is a real world case for this.  A bit too complicated to be clean-cut evidence, but at least suggestive.  The archetypal example of gift economies was the Kula ring, in which two types of symbolic gift were obligatorily traded for each other over a ring of islands, with one type of gift circulating clockwise  and the other counter-clockwise through the islands. These items had no practical use, they existed only to trade.  They became highly sought-after over time, as indicators of status.  In the variant described, both types of items should become invaluable over both directions around the circle, but should remain tradable for each other.
  • This example ends up as a fun paradox for utilitarianism under boundedly rational agents, a la Nozick’s utility monster, which subjectively enjoys everything more than everyone, and therefore under a utilitarian social scheme should rightfully receive everything.
  • The effect should be smaller as the number of people in the ring gets smaller.  A smaller ring means fewer steps until I’ve seen the object twice (less memory decay).  My memory that the thing was less valuable yesterday acts here as a counterbalance to the inflationary effect of loss aversion.