Continuing my previous post on the subject of value notion, in this post I will try to make another small step towards a big goal of value notion. Specifically, I attempt to explore what kind of major questions we can ask about the value of something. The list may not be comprehensive, but I believe those questions are important ones.

Let’s start with an example. If I want to understand the value of an individual, for instance, Elon Musk, I can look at several things. First, what is the main purpose of Elon Musk? We can say his purpose is to make human life multiplanetary or save humanity from AI dominance or simply be a good father. Some purposes are more valuable than others. For instance, in general an individual with good deeds is more valuable than someone who wants to harm others.

Next important question is: the value to whom? Who/what is at the receiving end? Depending on the object, the value might be different. I can say that my value to my family is bigger than my value to a random person on the street. Additionally, this “whom” does not need to be a person (and that’s why “willingness to pay” is not general enough). For instance, the beneficiary of a tree in front of my house could be the soil (I can also claim that the tree is the beneficiary of the soil), the birds that set a nest, or a squirrel playing on that tree. 

Third question is: the value at what time? The same thing might have different values at different times. For instance, my value as an adult is bigger than my value as a child. As an adult, my family can count on me, and my employer can count on me on certain things. If I am a child, I usually count on someone else to take care of me. 

In general, there are at least three elements that need to be evaluated when we want to answer the value question: (1) main purpose, (2) the receiver, and (3) time. The value of something with the main purpose of X to Y at time Z might be very different from the value of the same thing to Y at time C, which again might be very different from the value of the same thing to B at time Z.  But I feel like it is too early (and might be wrong) to claim that the value of something is a function of main purpose, receiver, and time. More on this in later posts.

More examples

Let’s look at some more examples, in which the object is not a human being.

  • Value of a book. Let’s take an economic book as an example. The main purpose of this book is to transfer economic knowledge. This book is more valuable to economics students, professors, and economic policy makers of a company or government, but less valuable to a mathematician or a 6-year old child (One can argue that the value is less because a 6-year old does not understand economics, but this does not deny the fact that the book is indeed less valuable to this 6-year old.). If you wonder what the value of this book would be for someone from the early modern period of modern history (approx. 1400s - 1800s), the value will be much smaller (or even useless) for apparent reasons.
  • Value of a $100 bill. The main purpose of this $100 is to exchange for something of equal value (in $). Its value to me is different from its value to someone from a third world country. The value of this $100 in the 1950s is very different from the value of $100 today and the value $100 today might be hugely different from $100 in 10 years.
  • Value of a stock. This is a tricky one because there is already a value notion for a stock, which is the net present value of discounted cash flows. But let’s forget about this established notion for a minute and try to answer the same three questions. First, the main purpose of me holding a stock is to share the growth of the company issued this stock. If I hold 1% share of the company, I am entitled to 1% share of the profit. Before I look at the receiver side of things, I first want to analyze the time element. It is obvious that the value of a stock last year is generally different from the value of the stock this year, and in general I’d expect value to increase over years. This is not because the change in time will result in a change in value, but because some other things change over time, which result in a value change. But this is not the focus of this post. Now the tricky part is the receiver. The question here is: who is the receiver of the value of a stock? In general, the value of a stock to a share-holder is different from the value of a stock to the company. On the one hand, the company can raise funds and invest in projects that they couldn’t otherwise by issuing stocks. On the other, the shareholders expect increased wealth by owning stocks. Obviously, these two types of values are different.

What could be done next? 

What I want to focus on next is the time element. As I mentioned earlier, over time, things change, which in turn change the value of some other things. What I am interested in is to see what changes over time for different things and how those changes affect the value of things. What are the causal relationships among value, time, and factors that change over time, if there are any?

What might be missing?

Lots of things. For instance, the value of a car is zero without a driver behind the wheel (self-driving cars are a different story.), or, the value of a musician will be much higher with an instrument, etc. My brief discussion with dagon in my previous post left many questions unanswered. But how important are they? If several factors can explain 90% of the variation in value of something, I am happy to move forward with those factors and ignore others. But I will leave this question for future posts on the topic.



 

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