Option (2) 20 lbs.
Is this going to be one of those threads that leaves us hanging? Please, no. I hate those.
What?. . . no punitive damages? 
Yeah, it’s a rough question, because the answer clearly comes down to ten quid and a horse. The most obvious value to put on the horse is a tenner, giving us the answer of 20. But you can make an argument for 30, or you could even make an argument for 10 (the horse depreciated and really is worth nothing, but the scammer convinced the seller it was worth 20). My final answer is his loss is ten pounds and a horse, but that’s not available, so I’d have to go with 20 as the number the test makers are fishing for.
I think it’s a lot easier to see this if you separate out the transactions.
1 you have 20, buy a horse to take to market, close the deal of horse +10 for a 30 pound check, the end.
2 You cash the check at the store, stop at the magazine rack, and the manager says this checks no good, I want my 30 back and you can take this check to the fraud cops, the end.
You now have 0.
I think it’s confusing because we have a tendency to see what others get and we don’t much more clearly than the reverse. As such this question could be very loosely interpreted as a variation of a Wason test.
No you are making a common mistake. You are confusing loss as a consequence of a particular event (fire) with loss as a consequence of market value change.
If you buy a house for £100,000, and spend £100,000 fixing it up to make it ready to sell, what you have is a fixed up house with a particular market value. It may be £250,000 if your improvements were astute or the market has risen. It may be £150,000 if you have overcapitalised the house or the market has fallen. The amount of money you spend on an asset tends to have some relationship with the value of the asset but the relationship is indirect.
When the fire occurs, your loss as a consequence of the fire is the market value of the asset you have lost, at the time of the fire. You may already have lost or gained money on the asset as a consequence of market change at the time of the fire, but that is a different issue.
Again, try a reductio on your theory. You say in your scenario you have lost £200,000 and it doesn’t matter what the value of the house was. So let’s say that since you bought the house and fixed it up the area has improved and the market has risen and on 1 July 2010 you had a firm offer from someone to buy the house for £1,000,000 and the buyer is coming to sign the contract on 2 July. On the night of 1 July the house burns down. Still say the loss is £200,000? I don’t think so.
Princhester, you are just getting back to whether “loss” means “a sunk cost” or “a lost opportunity.”
This is exactly what I was going to say.
Well I’m not an economist, but I think a decent argument can be made either way.
Several analogies that I find interesting…
Stock Market Losses: If you invest in a stock, you don’t lose money merely because the stock goes down (the market value). You only lose money if you actually sell the stock at a lower price. OTOH if your money is stolen by the stock broker you have lost your full investment, not just the present market value.
I’d score that one for me.
Here’s a score for for you:
Lottery Ticket:** You spend $2 for a lottery ticket **that turns out to be a $100,000 winner. Your ticket is lost/destroyed/stolen or otherwise nonredeemable. Did you lose $2 or $100,000 (approx.) I’d say $100,000.
Gold Nugget: You buy a gold nugget for $50, and it gets stolen. Are you out $50 or are you out the present market value?
To me it’s a toss-up. Were you planning on selling it immediately or were you just holding it without an immediate goal. If you were just holding it then you lost exactly your investment. $50.
If you’re an insurance agent then it makes sense to compensate people only for fair market value. But if you’re the person who has lost something then you have lost everything you put into it, despite what the insurance man says.
If someone is unfairly forced to get rid of something before they are ready (e.g. by theft), then they have lost what they put into it. Not just the market value at the time of the theft.
Your discussion is interesting and I’m aware of the principles but your discussion is not relevant to the OP situation. The OP situation involves a particular event which forcibly crystallises a loss at a point in time. The analogy in a stock market situation is for your shares to be misappropriated from you on a particular date: your loss is the market value of the shares on that date. The amount you paid for them originally is irrelevant.
Think about this: say you have some shares. I take them off you and sell them. You learn of this immediately and force me to compensate you. How much do I have to give you, right now, to put you in exactly the same position you were in before I took them off you? Suggesting that it is the amount you originally paid for them is absurd. I have to gve you back the market value, right now, so you can buy some shares to replace those I took to put you back in the position you were in. If you bought them for $10 but they are now worth $100 it is hardly going to give you back the value I took if I give you $10. And the same is true if the market has fallen rather than risen.
This is the correct answer. Easy to see if you recall that in zero-sum games the (signed) gains sum to … zero. Shopkeeper broke even; horserider had illicit £30 gain; what’s left?
Many economic misconceptions in the political threads in GD forum would disappear if people understood the useful analyses available with zero-sum formulations. It might be fun to correlate wrong posters here with wrong political analyses there! 
:dubious:
This is actually a new spin on an old problem from Marketing 101.
If I recall correctly the problem goes something like this Alice gives the following people a check for $1,000 when they get married: Greg, Peter, Bobby, Marcia and Cindy all get a wedding present of $1,000. On Jan’s wedding day she gets $25.00. How much is Jan out?
Well the anwer is NOTHING. In fact Jan is up $25.00. But when you ask groups of people this, most people will say Jan is out $975.00. But Jan is infact out nothing.
The $1,000 serves as what’s termed in marking as a “pseudo-reference” point. It gives something PRECEIVED value. Where in fact no true value exists.
That is why at the end of the problem the original cost of the horse is throw in. This is a psuedo-reference point and means nothing.
The original problem concerns what the person is out concerning the transaction specific, not the total cost.
By stating the price the horse was bought at, we natually want to figure in that cost. But what about the cost of food, the costs of stable fees, the cost of a trainer, rider and grooming.
One could argue, since those aren’t known we can’t figure that into it. But whether known or not those are actual costs. Notice how the problem makes sure the horse is a commodity with such built in hidden costs. A piece of art or such wouldn’t have such auxillaries to be addded or could be ignored.
The answer is the original price of the horse is a psuedo-reference point.
This is found in things like, I recall when I’d visit NYC, the ads for the Broadway show the producers would advertise, Box Seats at $498.00. Even though there were vary few box seats to sell, this means anyone pricing seats for that show would think $99.00 is a steal.
In fact the $498 is just a reference point. You could say the average cost of a seat was $99 and people would then think box seats are priced outrageously high at five times as much.
Trying to understand all of this is making my head hurt :). Could someone point out the flaw in my logic?
Start: Horsedealer has horse worth $20 (or $10, depending on whether you consider the expected profit to be part of the horse’s value)
End: Horsedealer has no horse, and is also out $30 to shopkeeper. He has put no money in his pocket from this. So wouldn’t that be a $40 or $50 loss, depending on what you consider to be the value of the horse?
Nevermind, that money came from the shopkeeper. The horsedealer is only out what the horse thief gained, as the shopkeeper stays at the same. The horse thief walks away with $10 plus horse, so the dealer loses either $20 or $30, depending on how you value the horse.
&40 - &20 for the horse and &10 for the shopkeeper and &10 change to the customer
OK having read it more carefully…
-
Horse Dealer buy a horse with 10 pounds from Original Horse Dealer
HD -10E +1H
OHD -1H +10E -
He sells the horse plus 10 pounds cash, to a Man for a 30 pound check,
M + 1H -30C +10E
HD -1H +30C -10E
3)The shopkeeper trades 30 pounds for a 30 pound check plus promise to compensate for fraud
SK +30C -30E
HD -30C +30E
- Horse Dealer compensate Shop Keeper the thirty pounds he was given
SK +30E
HD -30E
Final result:
Original Horse Dealer: -1H + 10E
Horse Dealer: -10E + 1H -1H +30C -30C +30E -10E -30E= -20E + 0H + 0C
Man: +1H -30C +10E= 1H -30C +10E
Shop Keeper: +30C - 30E +30E
So original horse dealer gets 10 pounds and loses a horse
Our horse dealer ends up missing 20 pounds
The thieving man ends up with a horse, 10 pounds, and liable for a false check of 30 pounds
The shop keeper ends up with 30 pounds to compensate for the thirty pounds they shelled out for a bogus 30 pound check - assuming no fees, they end up even
OK this is difficult lol
My new answer:
OK having read it more carefully…
-
Horse Dealer buy a horse with 10 pounds from Original Horse Dealer
HD -10E +1H
OHD -1H +10E -
He sells the horse plus 10 pounds cash, to a Man for a 30 pound check,
M + 1H -30C +10E
HD -1H +30C -10E
3)The shopkeeper trades 30 pounds for a 30 pound check plus promise to compensate for fraud
SK +30C -30E
HD -30C +30E
- Horse Dealer compensates Shop Keeper the thirty pounds he was given
SK +30E
HD -30E
Final result:
Original Horse Dealer: (-1H + 10E)
Horse Dealer: (-10E + 1H) (-1H +30C) (-30C +30E) (-30E)= -10E + 0H + 0C
Man: (+1H -30C) (+10E)= 1H -30C +10E
Shop Keeper: (+30C - 30E) (+30E)
So original horse dealer gets 10 pounds and loses a horse
Our horse dealer ends up missing 10 pounds
The thieving Man ends up with a horse, 10 pounds, and liable for a false check of 30 pounds
The shop keeper ends up with 30 pounds to compensate for the thirty pounds they shelled out for a bogus 30 pound check - assuming no fees, they end up even
Having read every one else’s posts, the best compromise I can offer is that the horse dealer lost 10 pounds hard cash, and 10 pounds of promised profit. I can’t justify anything above that potential 20 pounds. Am I wrong?
Yeah, right here you left out the additional 10 in cash that the dealer gave to the thief. The thief recieved a 20 pound horse and 10 in cash for a 30 pound check. So the thief is up the horse and 10, and the seller is out the horse and 10. But the best, most current estimate we have for the value of the horse is the 10 the seller paid for it. Sure, he might have paid maintenance, but he might have bought it that morning believing he could flip it in town for a profit. It might be worth 20, or the thief might have offered an inflated price to hurry the deal, but that’s not in the OP, all we know is that the seller paid 10 actual pounds for it. I still think he’s out 20.
a pony for 20 quid?! me want. i’ll buy everything you’ve got.
A perfect post to illustrate why all those who think the answer to the question can be determined from the information given are wrong: clearly going by your post the dealer got the horse cheap so 10 pounds for the horse does not represent the value he lost, and neither does 20 pounds.
You are all wrong.
You never make any profit for horses.