Worth reading. We all need more thought on these ideas. What misleads horribly is that so much of our economy is monetized while at the exact same time, so much of our economy is not monetized.
Think of all that plastic in the ocean. Clearly part of the global economy and even a damaging part. What is the value of this either negative or positive? My point is that right now it is not monetized at all, but its production was.
All value is produced by human consent and thus objective value is hardly possible. Anyway have fun with this item.
How Many Economists Still Get Subjective Value Wrong
Subjective value is not objective. Sounds obvious, but the distinction is lost on most — scholars and practitioners alike.
People seem to think subjective value is simply a person's
'willingness to pay' a price. Well, it's not.
Subjective value cannot be
expressed in dollars and cents, because that would simply mean
subjective value is an expression in terms of objective market
purchasing power.
If value is subjective, however, that purchasing power too is
subjectively valued, in terms of what subjective value it can provide
(through the actual goods and services the money can purchase). And, in
any market-like setting, willingness to give up purchasing power for a
good only indicates that the person subjectively values that purchasing
power (however it is appreciated by him/her) less than the value
expected from the good that can be purchased.
Willingness to pay, expressed in the dollars and cents that in turn
can command goods and services, only means the buyer expects to be
better off from going through with the exchange. In terms of value
theory, there may be no connection between the value of that which is
forgone and that which is gained in return, other than them being valued
differently (the former higher than the latter).
Scholars should know better than to confuse these things, but they're obviously quite confused.
Instead of thinking about the meaning of what they say, they adopt a
practical shorthand used to get a dollar amount on a customer's
valuation. This makes some sense from a practitioner's perspective,
where a customer's willingness to pay for one's good is a rough estimate
of what money price could potentially be charged for the good.
It's not accurate, however, which is why entrepreneurship models
suggest that entrepreneurs should make sure to charge a price lower than
customer's stated willingness to pay (if it can at all be trusted).
Also, the actual willingness to pay depends on offering the
actual good along with the argument for why it would be valuable for the
customer to have/buy it.
In a different time and place, and with different messaging, this
'willingness' changes both with how the good is subjectively appraised and with the other opportunities available to the customer. I might value a hamburger, but I value a hot dog more.
Consequently, if there are hot dogs my willingness to pay for
hamburgers is practically zero; if there are no hot dogs in sight, my
willingness to pay for hamburgers may be significant. See how this
works?
One's willingness to pay is not about the [subjective] value of the
good itself (that is, the satisfaction experienced, or in any case
expected), but is contingent on alternatives available. Practitioners
who are careful can gain insights from willingness-to-pay estimations.
But it is still a very blunt tool, since what actually matters is the
subjective valuation of a good and the subjective valuation of
alternative goods (the comparison/tradeoff).
That scholars equate subjective valuation with objective money prices
should be considered severe professional misconduct. For those who are
in the business of thinking carefully about things, there is no place
for conflating things.
Or, as in this case, mistaking (interpreting, really) subjective
value for being objective. This is inexcusable and should disqualify you
from the academy.
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