The final exam for Economics 101 is not held in a university classroom. It is held in the real world years after the course is over. And United Continental executives flunked.

The failure did not occur last Sunday night when a passenger was forcibly removed from an airplane in Chicago. The failure occurred when policies and procedures were set, probably several years earlier. United apparently asked for volunteers to leave the overbooked flight, first offering a $400 voucher for future travel, and then upping the offer to $800. But United did not get the four volunteers it needed, so the airline ordered four passengers off the plane.

United Airlines airplanes sit on the tarmac at LaGuardia Airport in New York, Wednesday, March 15, 2017. (AP Photo/Seth Wenig)

A good economics course teaches that people are different. Some people would have probably held out for thousands of dollars before leaving the plane. Others, though, may have been pretty close to accepting the airline’s last offer. At some price, the four volunteers would have been found. It might have cost a $1200 dollar voucher, or even a $2000 voucher, but volunteers could have been found at the right price.

United executives should also understand that their vouchers are perceived to have less value than cash, especially by anyone who has tried to redeem frequent flier miles. Switching the offer from a voucher to cash might very well have moved four people to quickly accept the offer.

So let’s go back to the initial failure of the United executives. They decided to cap the amount offered when volunteers are needed to leave a plane, and have language in their passenger agreement allowing the airline to remove passengers with valid tickets.  And this on airplanes where virtually everybody has a video camera.

It may seem to the executives that offering higher prices would place the airline over a barrel: passengers could hold United hostage for unreasonably high compensation. But this thinking fails in two ways. First, everyone’s story is different. Just as the airline had an urgent need to get its four employees to Louisville, the passengers all had reasons to be somewhere else. Maybe it’s a wedding, or a job interview, or whatever, but the passengers all have lives with important activities. It is a mistake for the airline to say that it had a very urgent need for its employees to board the plane, but it was unwilling to offer high enough compensation to get four volunteers to leave the plane.

The second reason the airline’s thinking was unreasonable was to ignore competition among passengers. If I, as a passenger, hear an offer that I think is good, then I’m in danger of missing out on that offer if I wait for an even better offer. Some one—or some four ones—will at some point take the offer.  And that would have been a better deal for the airline than having an ugly video go viral.

Many executives fall into the trap of worrying about dollar amounts that are easily identified, but ignoring important dollar amounts that are not so easily identified. The cost of vouchers to get volunteers to leave a plane is easily identified. The ill will caused by removing ticketed passengers is not easily identified. But it is very, very real. As any good student of Economics 101 knows.