Because most philosophies that frown on reproduction don't survive.

Monday, November 14, 2011

What's it worth? What's the price?

Brandon has a post up over at Siris which I can't help linking to, given the subject matter. The origin in this bloggish chain of being is a post over at First Things, showing the world's most expensive photograph:
This picture sold for $4.3 million
Clearly, one might ask, is it worth it?  Several commenters make the claim that it must be worth $4.3 million, since that's clearly what someone paid for it.  Brandon responds:
I find the automatic response of some commenters interesting: the claim that things are worth simply what people are willing to pay for them has the direct implication that nothing can be overpriced or underpriced; that there are no bargains and no bad deals; that, in fact, it is impossible to price anything unjustly as long as someone will pay it. Nobody actually believes such nonsense; everyone attributes value and disvalue to things by comparisons that have nothing to do with the actual price paid, and we all can make perfect sense of saying that somebody paid too much for something, or that a price is too high even if someone will pay it. The conditions under which price paid can reasonably be said to track the worth of the thing in question are not universal; in part because other things beside the thing bought can be factored into deliberation about price. Status signaling, for instance, which can at times have virtually nothing to do with the thing bought. Nor is it plausible to identify actual worth with attributed worth in the absence of any consideration of practical or moral rationality. But it is interesting how easily people will swallow such an incoherent principle, merely because they have the notion that it’s ‘economics’.
This brings up an interesting conflict between price and worth. Something's price is determined by some balance between how much those who want an item are willing to pay for it, how much those who currently have the item are willing to accept in return for it, and the supply of items on hand. Something like this photograph becomes particularly tricky because the article being sold (a particular print, mounted a particular way, with, one assumes, some implicit agreement as to how many identical items the original photographer will or will not allow to be produced) is unique. Thus, it only takes one potential buyer with (to use my mother's phrase) "more money than good sense" to set the price very high indeed. Because it is determined by willingness to pay, price is necessarily volatile at times, especially when you're dealing with something like this.

But what is its worth?

This is an altogether different question. Certainly, by all our actions we seem to suggest that things do have a worth, and that to some extent, we know it. As Brandon points out, we could never suggest that something was a good or a bad bargain, that something was over or under valued, if we did not have some sense that a thing has some knowable degree of worth.

I'd like to think for a moment on the intersection of these points: the way that price is determined by many people making assessments of worth. Take any given item. I have an ipod sitting on the desk here, so I'll use that. How much is it worth? There's a huge range of different prices at which you could sell some number. But at each price, the numbe that you sold would be a function of the number of people who considered the price 'worth it' and the number who didn't. You might, theoretically, be very successful in selling a product that the vast majority of people did not consider worth the price, so long as enough people did consider it worth to the price to make your business structure work. (Things fall apart when a company expects far more or far fewer people to consider a price 'worth it' than turn out to be the case.)

In this sense, markets (the "economy" as we tend to think about it) are only necessary or useful because there is a great deal of disparity out there in what people consider things to be worth -- both in an absolute sense and in relation to their available means. Pricing and markets are a method of getting around differing preferences and amounts of knowledge when allocating scarce resources among a large and diverse group of people.

As for the world's most expensive photo? No, I don't think it's worth it. I'm out of the running.

9 comments:

Brandon said...

I was wondering what your thought would be on this. The whole thing reminds me of the old Calvin & Hobbes (if I'm remembering correctly), in which Calvin is selling lemonade for some exorbitant price -- $100 a glass, or something -- and explains that all he needs to do is find one idiot who will buy it.

The photographer in question apparently does unusual kinds of photographs -- if I understand correctly, the photograph above is actually very large -- so a certain amount of excess beyond what one would expect of a normal photograph would make sense. But photographs are a weird case, anyway, because, as you note, they are in principle indefinitely replicable, so this is a photograph that could easily be had relatively cheaply. And art markets make it weirder still, since they are a form of market that puts so much emphasis on uniqueness that they work oddly -- the goal is not to sell as many as possible but to make a profit while selling relatively few -- and high art prices serve as a proxy for patronizing the artists themselves. So many weirdnesses.

jenniferfitz said...

Well said by both of you -- enjoyed these two posts.

***

Art and fashion markets are a little strange, since there is such a strong psychological component to the pricing. You aren't so much buying the product as the social experience of being the person with that product right now.

Auctions double the weirdness, since the price isn't what a group of people will pay, but the very most the one person who most wants the item (for whatever reason) is willing to pay.

It is also a little bit like love. Marry in haste, repent in leisure, all that.

Tony said...

I have to disagree with Brandon. Something is worth precisely what someone is willing and able to pay for it.

When you assign value (good price, bad price) it is always in relation to you only.

Brandon said...

When you assign value (good price, bad price) it is always in relation to you only.

But the equation of value and price paid is illegitimate here, as well; price does not track what we consider valuable even if "it is always in relation to you only". How much do you actually pay for the air you breathe, Tony? Not worth very much to you?

And, again, you run into exactly the same problem: if you are right, it is impossible to get a bargain on something, because everything is worth exactly what you pay for it.

But, of course, it's not true that value is "in relation to you only"; they prove that it's wrong every Christmas, where they buy things they themselves do not want because something else entirely -- e.g., their friends and family -- are what is actually valuable to them.

Brandon said...

OK, I pretty much mangled that last paragraph. It should read:

"But, of course, it's not true that value is 'in relation to you only'; people prove that this is wrong every Christmas, when they buy things they themselves do not want because something else entirely -- e.g., their friends and family -- is what is actually valuable to them."

Anonymous said...

"the claim that things are worth simply what people are willing to pay for them has the direct implication that nothing can be overpriced or underpriced"

Wrong. If the buyer of this photo can immediately resell it for more than $4.3M then he didn't overpay. If he can't, then he did. Everything that can be sold is worth what someone will pay for it now. No more, no less.

With one exception. If that photo is worth more to me than it is to anyone else - if I have $4.3M to burn, and if I feel utterly fulfilled in my life every time I look at it - then it is worth $4.3M to me even though it isn't worth that to anyone else.

So there are two valid scenarios under which this buyer isn't a fool.

Joel

Darwin said...

I think the question Brandon is asking is not "is the buyer a fool" but rather "is 'worth' a term that only applies to the price for which an item can be sold."

Even in a strictly economic sense, it seems to me that there's an assumption that there must be some element of worth out there other than the price something can command at the moment. For instance, in during the housing bubble, when houses were rapidly appreciating in value, it seems to me that it would have been reasonable to talk about houses being "overpriced" or priced at "more than they were worth" even before the bubble actually popped and someone was left holding the bag. Thus, someone who bought a house in Silicon Valley in 2006 for $900k and sold it for $1.2m in 2007 may not have been a "fool". Clearly, he pulled it off and did rather well. But arguably he both bought and sold for the house for more than it was worth, even if it wasn't until the tenure of the next owner that the market value suddenly fell to $600k.

The problem is (and the reason that we have markets) people have a hard time agreeing on what the actual value of something is -- and it has different values to different people (based on their preferences and wealth.)

I'm highly skeptical of the idea that one can come up with any very clear knowledge of what something is really worth, but it does strike me as being an important concept.

Brandon said...

Joel,

Your comment simply is a restatement of the consumerist cliche, without actual argument. There seems to be a logical error in it, however, in that it is put forward in opposition to the claim that price does not simply track worth, but only claims that there are situations in which it does. This looks like it is treating subcontraries as contradictories.

Regardless, I notice that we get the weasel-phrase, "anything that can be sold". This leaves only two options: either things that can't be sold have no worth, or there are kinds of worth that are not tracked by price. Accepting the first would be a sign of stupidity; if someone can't sell children, it's not because children have no worth but because they have a worth beyond the capability of any price to track. An attempt to save unreflective consumerist cliches by arguing that human beings only have worth if they can be bought and sold is a tad too crazy. If, however, the second is accepted, then either (a) having a price is simply inconsistent with having such worth, in which case we need a criterion for what has a price and what has priceless worth, given the clear fact that prices can arbitrarily be put on anything (including human beings); or (b) things with prices can also have worth not tracked by the price, in which case it's nonsense to accept the claim that such things are worth what one pays for them.

Even when we are dealing solely with worth that can be tracked by prices, however, the cliche collapses into incoherence. For one thing, it's a well-known phenomenon that actual prices can be different from what one intended to pay in the first place: small-print fees and the like can be overlooked, or miscalculations can be made, for instance, in such a way that one ends up paying more for something than one intended. Price, in other words, insofar as it enters into my judgments of value cannot be conflated with actual prices paid, the transaction price; there are circumstances under which they diverge.

Lauren said...

Art pricing is tangentially related to my work as a book and paper conservator. We always advise our clients to be aware of the value of their object so they don't over spend on conservation for an artwork that isn't worth the investment. Of course, many of our clients choose to spend more than the object's potential auction value (Thank the Lord b/c it keeps us in business.) They spend more b/c they value the object in different ways. Either they think the object will increase in value over time, and conservation increases the life of the artwork so it will work out as a positive at some point. More often the object has research or historical value beyond its immediate going rate. Sometimes the object simply has sentimental value so one person or a family values the object enough to invest in its future.

I'm assuming that the 4 million dollar photograph is a long term investment for some art lover. They get to enjoy the piece while it hopefully accrues some value over time. It's a gamble like any investment. Museums can spend a very high amount if they have the cash because their investment timeframe is so long. They may never sell the object, and are thinking of its value as a exhibit piece over centuries.

I'm alway shocked at the prices people pay for ephemera like comic books and baseball cards. Often you could buy a unique renaissance manuscript for the price of a comic book with 10 copies in existence. I do not understand this. My business is the longevity of the materials. Unless you store your ephemera in an anoxic environment it probably won't last fifty years. I think of ephemera as the mortgage backed securities of the art world.