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.