JANUARY 22
Value Is Subjective
Why Different People See Different Value
The Signal
Nothing has value on its own. Value exists in the mind of the person making the decision.
The Reading
Imagine you own an old teddy bear that has been in your family for fifty years. To anyone else, it may look like a worn-out toy worth only a few dollars. To you, it reminds you of your childhood, your parents and moments that can never be replaced.
The teddy bear never changed. Only the person looking at it did. This is one of the most important ideas in economics. Value does not exist inside an object. It exists inside the mind of the individual.
Now imagine you are walking through the desert on a scorching summer afternoon with no water left. Suddenly someone offers you a cold bottle of water. How much would you pay? Now imagine that very same bottle sitting beside your kitchen sink at home. Would you pay the same amount? Of course not.
The water did not change. Your circumstances did.
Every day people make these kinds of decisions without even thinking about them. A collector may happily pay thousands of dollars for a rare coin that someone else would never buy. One person sees an old family recipe book as priceless, while another sees only old paper.
The object remains exactly the same. The value changes because people are different. Our needs, experiences, emotions, knowledge and circumstances all shape what something is worth to us.
That is why economists say that value is subjective. In the end, something is only worth what another person believes it is worth.
First Principles
Value does not exist inside objects.
Different people can value the same thing differently.
Our needs, experiences and circumstances shape what we believe something is worth.
Today’s Challenge
Walk through your home and choose three special objects.
For each one, ask yourself: Why is this valuable to me?
Now ask a second question. Would someone else value it the same way?
If not, what changed? The object or the person?
Tomorrow’s Signal
Price Is Communication