David R. Henderson  

Values are Subjective

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The first day of every econ class I teach, I start with my "Ten Pillars of Economics." Pillar #7 is, "The value of a good or service is subjective." Last night, I went to dinner with two of my star students who are graduating this week. One of them told me a funny story that illustrated that. He, his wife, and his 5-year old son, in their older SUV, pulled into a parking lot at a restaurant on the weekend. In the parking lot was a beautiful Ferrari convertible.

"Look, son," he said, "that's a really valuable car."

"I don't like it as much as Mom's car," replied the 5-year old. "Look, it doesn't even have a roof."

My student, Michael, started to answer and then realized that his son was just illustrating Pillar #7. He turned to his wife and said, "Treasure this moment. This may be the last time he compares your car favorably to a Ferrari."


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COMMENTS (10 to date)
Chris T writes:

You would think this would be common sense, but it amazes me how many people think the value they give to things or ideas is universal. A lot of political bickering could be put aside if people would simply acknowledge that they disagree over the relative value of something rather then the other side being malicious.

Rebecca Burlingame writes:

If only Pillar #7 was being put to good use in health care for consumer choice.

Rebecca Burlingame writes:

Pardon me for not reading the ten pillars first! I noted #4, "The only way to create wealth is to move it from a lower value to a higer valued use. Corollary: Both sides gain from exchange."
Here's my thought on #4 for creating wealth. Imagine that forms of wealth could actually be tied directly to human skills. It would not be just human skill that consequently gains greater value, but all that pertains to adding value to human skill. In the present of course we have the value of higher education for that, but were it possible to tie wealth to human skills directly, all kinds of knowledge would gain exponentially in value. Only think of the added value that non-fiction books (and some fiction) would gain. That would be ample gain for this former bookseller.

Les writes:

It seems totally obvious that value is in the eye of the beholder. Value has to be subjective.

If every good and every service were to be valued the same by every person, then there would be no purchases and no sales at all. Why trade item A for item B if both buyer and seller had identical values for item A and for item B?

An economy with no transactions is hard even to imagine!

Philo writes:

What do you mean by 'subjective'? Besides value, what are some other things or phenomena that you think are subjective?

My guess is that you would accept beliefs, preferences, motivations, and perceptions as examples of subjective phenomena, but that you would say truth is objective, not subjective. But truth is so much like value, having a relationship to belief similar to value's relationship to preference, that I have to wonder if value isn't objective, too.

But I won't know until I see your definition of 'subjective'--if you have one. (Producing a satisfactory definition is not easy.)

Note that your student's son did not say his mother's car was more valuable than the Ferrari; he said he *liked it better*.

Yancey Ward writes:
If every good and every service were to be valued the same by every person, then there would be no purchases and no sales at all. Why trade item A for item B if both buyer and seller had identical values for item A and for item B?

This, of course, is the most obvious proof of value subjectivity, but it never ceases to amaze me the lengths some people will go to to deny this.

Benny Bai writes:

People trade exactly because each perceives value subjectively and, hence, assigns different values to various goods or services. The incentive for trade is for a person to gain "more" for "less", which is self-interest maximizing. I give you an orange in exchange for an apple because I value the apple at say 1 dollar and the orange at 80 cents. On the other side of the exchange you probably value the apple at 80 cents and the orange at 1 dollar. Allowing for low enough transaction cost, this simple trade creates value between 0 and 40 cents.

The actual reason for different subjective value is unimportant though.

JH writes:
Note that your student's son did not say his mother's car was more valuable than the Ferrari; he said he *liked it better*.

He's 5. Five-year-olds don't say "valuable".

Doc Merlin writes:

@JH
"Note that your student's son did not say his mother's car was more valuable than the Ferrari; he said he *liked it better*."

That is what subjective value means. You are confusing value and price.

Philo writes:

@Doc Merlin

Well, whatever else I'm doing, I'm certainly not confusing value with price.

It sounds to me like you're confusing value with liking (or preference).

I suspect 'subjective' means *relative to a subject*: a (supposed) property is then "subjective" just in case a thing's having that property is actually the obtaining of a mental or psychological relation between the thing and a psychological subject (a mind). If anyone who said "x has value" simply meant "I like x," then value would be subjective. But, of course, that's not what "x has value" means.

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