Subjective Theory Of Value
Categories: Financial Theory
Brussels sprouts...a piece of cardboard...a diamond ring. One man’s trash is another man’s treasure.
The subjective theory of value is the idea that the values of things are totally subjective, and not inherent to the object. Take diamonds, for instance. If humans were like “meh” towards shiny things, diamonds wouldn’t cost so darn much. Likewise, one person might be willing to spend thousands on a Gucci bag, while another will scoff at the waste of money.
The more useful an object is, the more people are willing to pay for it. Things like diamonds and Gucci bags are more about projecting messages (status, love, wealth) than anything else. While some find that highly useful and totally worth it, others (those with different values and means) find it not-worth-it-at-all...useless.
Besides the usefulness of an item, the other thing that affects the price of an object under the subjective theory of value is its scarcity. High demand and low supply means more expensive prices. While on a normal day you’d laugh at the prospect of paying more than fifty bucks for an Uber ride, if you find yourself with no car and a broken leg, you may be very willing to pay fifty bucks or more for an Uber ride. Whether to the hospital or your friend’s basement. We won’t judge.
