What Is Value
Oscar Wilde said, “The cynic knows the price of everything and the value of nothing”. There is some truth in this but value is a slippery concept which means different things to different people.
At its heart, value represents what something is worth. So good value is when we pay less than something is worth and poor value when we pay more. That all sounds obvious but how do we know what something is worth.
A couple of experiments in the field of behavioural economics illustrate the point. If you want to sell a £400 handbag, try advertising a £7000 one in the front of the store, suddenly £400 looks a steal and you sell more. Or if you want to sell a £390 coffee maker put it on a poster next to a £790 coffee maker with a similar spec and watch it fly. In behavioural economics these concepts are known as ‘anchoring’ and ‘framing’ and are examples of the sort of biases built into the human mental apparatus.
They really just make the simple point that ‘worth’ is an artificial construct and not easy for our simple minds. Estate agents will often tell you that a house is worth what someone is prepared to pay for it. And although not particularly helpful this does have the ring of truth about it.
On the whole, the easiest way to judge worth is by comparison i.e what does the same thing cost elsewhere. This is of course why brands exist, in an attempt to create uniqueness, so direct comparisons cannot be made.
And uniqueness surely works. My 10 year old son asked me yesterday ‘how much is the Mona Lisa worth?” I tried to explain ‘priceless’ with little success. “If I learnt to paint and I painted the Mona Lisa, what would that be worth?” he asked. I was in a bit of a rush so fell back on the easy answer “It’ll be worth whatever someone is prepared to pay for it son”. And with that I left for work.