Ever wonder if it might just be advantageous to think differently from those around you? Sure there are lots of cons: maybe you tend to get bored by what you consider inane talk about mindless sporting events, celebrity gossip or international news. While everybody else dreams of four bedroom mansions with fully chrome kitchen appliances and expensive German cars parked out in the driveway, perhaps your thoughts are on growing cacti, or brushing up on 19th century Russian literature, or whether RomeoVoid might ever come out with a new album?
Well, the good news is: being different is actually economically good for you! I propose to expound this (novel??) theory here in this blog: the Nobel prize jury for economics knows where to find me, and I am fully prepared to wait a few years.
Let’s explain the basic idea with a simple model. In the Land of Pi, people like to eat apples and bananas. For various reasons ostensibly connected with supply and demand, bananas are more expensive than apples: in fact one banana costs the same as four apples. Everywhere in the land of Pi, where the citizens are placidly uniform and all more or less think the same pleasant thoughts, everyone agrees that B=4A.
Want to trade your two bananas for my eight apples? Sure, that’s only fair. But your two bananas for my nine apples? You’ve got to be kidding! I know the true value of things.
In the far distant Land of E however, where apples and bananas are also the two main fruits, a different agricultural rhythm prevails. Perhaps the place is more tropical, and bananas grow more easily, or perhaps the United Apple Consortium has better political and marketting savvy: in any case apples and bananas in this land have equal value: one apple and one banana are worth more or less the same. Young people, old people, rich or poor all realize that B=A is the state of affairs here.
Now let’s suppose that you, a happy citizen of the Land of Pi, take a long and perilous journey to the Land of E. The Lands are far apart, so essentially no trade takes place between them–a fact that we can deduce from the marked differentials between the values of apples and bananas. You’ve scraped up some Land of E money doing some casual labour, and head off to the store to buy food.
You are going to be in for a bit of a surprise in the fruit section. Instead of bananas being four times as expensive as apples, which all reasonable people know to be the true value, here they are actually equal in price! Let’s make the assumption that for an hours worth of work, you can get roughly the same amount of food as you can in Pi. It means that bananas are much cheaper here than you are used to, while apples are more expensive. Naturally you are going to buy lots of bananas, and you are going to think—this is great, I am getting a lot more food for my hour of labour here! Of course you might get a hankering for apples now and then, but every time you buy one the exorbitant price will annoy you.
Of course this example involves two products that are more or less interchangeable as a food source—you don’t actually need to buy both of them. There are no doubt other qualifications to add before undergrads starting learning Wildberger’s Theory of Relative Values. The Nobel committee will want me to quantify the theory, but I think the basic idea doesn’t really need much mathematical underpinning. If you have a different value system from those around you, some things appear cheaper to you while others are more expensive, so if you can choose you are better off.
Here is a way of turning the situation around to see the argument in a different light: suppose someone opened a new store where all the prices were as usual in the first week, but then in the second week they were all marked up or down in a random fashion. When would you prefer to go shopping? If you didn’t actually have to buy any one particular item, I bet you’d go during the second week.
Here is another example: here in Australia at the beginning of the twenty-first century, I can go to a movie for $10, a play for $50, a symphony concert for $60, an opera for $200, or a Barbra Streisand show for $1200. My estimations of the “true value” of these things? Something like: movie $15, play $30, concert $20, opera $50, and Barbra’s show I won’t say, in case you are a fan.
You can deduce that I rarely see plays, go to concerts, attend operas or pay money to hear famous people sing. Because I am a cultural slob? No, simply because they are worth a lot less to me than the market wants. Movies, on the other hand, are worth more to me than I can get them for. Naturally I see lots of movies, and am happy.
So an interesting psychological ploy now manifests itself. Instead of working harder to make more money to spend on stuff, why don’t you just judiciously re-orient your thinking so that you value things differently than the market? The direction of re-orientation is not really important, the main principle is that the more widely your value lists differ from those of the majority, the better off you are in real terms. Non-conformity is the new economic black!
Suppose that I could hypnotise myself into thinking that movies are much more interesting and worthwhile than I think they already are—each experience worth hundreds of dollars: say on a par with a helicopter ride over the Grand Canyon, or those early morning balloon flights over the Hunter Valley Vineyards. Wouldn’t I be a lucky chap then, managing to snare such bargains for the ridiculously low price of $10 a shot! You get the idea; I’d end up with thousands of dollars of value each month for next to nothing.
On a related note, I would be interested in knowing what people think about how much things are “really worth”. How much are different kinds of cars worth? How much are holidays to various places worth? How much are dates with different types of women worth? How much is early retirement worth? (One of these questions seems a lot more interesting than the others, don’t you think??)
And of course, how much are apples and bananas really worth?
Sufficient economy as a term comes up often here in Bangkok and the Buddhist teachings reinforce the practice of looking within …if only to put relative values in perspective with the things we can not prove or evaluate in this life. I don’t see evidence of this view point in the materialistic copycat herd like mentality around me but I know it’s there…somewhere. Maybe I could start bartering once I do find it.
My life has changed dramatically since I’ve come here to stay. My western advice is appreciated and it pays enough to see true value in living for the things we really want out of life but it can’t buy the approval of the materialistic copycat herd. My early semi-retirement is worth more to me than what people want for themselves and how I fit into their scheme of things.
I recently looked up…why do we use cc when ml is supposed to be the same thing? I haven’t found the answer to that question through most search engines and maybe it isn’t an important thing to know but I can’t help thinking about the mindless answers …repetitions of the same old fact of conversion. I found this same experience in guitar forums. ( I’m a musician. )
Sorry I missed you in Bangkok. I would’ve liked to have attended your seminars as I do follow your youtube lectures. Will you be in Bangkok again?
Hi Roland, Thanks for the interesting post; I suspect that some spiritual practices are aimed in a similar direction as my (somewhat crass) economic analysis. I think the broader question of what has value and how do we determine it should be more investigated and discussed by others in addition to economists, who are inclined to defer to market forces.
I do pass through Bangkok every few years. I will try to let you know if I am giving a seminar there next time.
Perhaps you would also like to take YOUTUBE as a case for analysis. Here we would pay nothing for movies, plays, operas and celebrity shows…
Let’s hear it for YouTube!
The relative valuation of the banana and apple will be subject to different assessments prior to their consumption; however, afterwards you can count on both being 8 (or, if you prefer, “ate”).
More seriously, recently I found a free and extremely fast, extremely precise calculator software, called Pari, from the Institute of Math at Bordeaux in France. It seems to work to precisions in the thousands of digits, trivially. Pleasantly enough, there’s a module for the perl language which plugs into it nicely, and it runs beautifully on this 7 year old laptop I have, which otherwise gasps and wheezes trying to run a simple YouTube video. The machine is at the fringes of the definition of “e-waste” today, yet one can’t help but wonder: what Archimedes or Euler would have done with one of these things?
So yes, I get a great kick out of people who save up to buy a new car, or a big-screen TV to watch “America’s Got Talent”.
I appreciate the value of thinking differently from those around you, not just economically but mathematically as well. I watch your videos, right! 😉
The price of an item is not entirely set by cost plus some mark up. Sometimes it is set by what the vendor sees as perceived value, or what they believe the buyer is willing to pay. When the vendor gets this wrong, they announce a sale.
I am into commercial maths and one area I am studying is cost accounting. Cost accounting has many open problems so much so that accountants do not bother anymore counting precise cost of production; they just go for the so called “standard cost” which is not pretty standard at all. It is akin to a gut feel cost value.
Isn’t this a variant of what Ricardo was describing in 1817 as “The Theory of Comparative Advantage”? (http://en.wikipedia.org/wiki/Comparative_advantage)
Roughly speaking, it is a mathematical truth that total output of a group (of people, companies, countries, planets, etc.) is maximized when each entity is performing a task that they are most efficient at. Even if A is less efficient at task X than B, the group maximizes output if A does X, and B performs taks Y that B is more efficient at performing than task X.
Comparative Advantage works well with specialization, if specialization can enhance productivity of specific tasks, and everyone sticks to their most efficient speciality.
I always liked that idea…comparative advantage. It kind of reminds me of ” Our group is only as strong as our weakest member”, or something like that. But then there begs the question about what it is we are all working towards…collectively. And in a society that still puts a lot of emphasis on moral relativism, what then I wonder.
I guess the main idea is that if you value things uniquely, then you can choose to not make puchases you consider overpriced, and using your savings to make purchases you consider a bargain. One point worth speaking to is that being honest with yourself about things will give you a superior value system. For example, if I have a dominating drive to tell myself a story about an event that puts me in a light that I enjoy thinking about myself, I will distort the events through that lense. On the flip side, if I look at an event in a way that focuses on every fault, well… Im still looking at things in a distorted fassion. An example of ranges of self evaluation might be from I’m brilliant, I’m handsome, I’m successfull, to I’m stupid, I’m a loser, and I’m ugly. To get a more honest perspective though, I think one would have to dig deeper. I think much pop culture feeds insecurities and idolizes the self image, and this in itself creates distortions in, among other things, the prices of things. Just flip through the channels on the TV, or look at the magazine wracks at any supermaket checkout. There is for sure still one great bargain out there for anyone looking, and thats not buying into this kind of B.S..
I always think something like that: “Having a expensive car ou talk with a hollywood celebrity is something impossible, but finding ways to increase our inteligence or having a talk with a Ph.D. is absurdely easy/inexpensive, I’m happy for being in the right side.”