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Source link: http://archive.mises.org/20208/the-macpc-rivalry-a-case-study-in-subjective-valuation/

The Mac/PC Rivalry: A Case Study in Subjective Valuation

January 2, 2012 by

I'm a Mac. And I'm a PC.My latest computer is a MacBook Pro. I get made fun of from time to time. Many people feel very strongly about Mac computers. To borrow a joke from Mitch Hedberg: people either love Macs, or they hate them, or they think they’re OK. I can’t think of anything that more aptly illustrates the subjective nature of valuation then the Mac/PC rivalry.

I am going to deliberately avoid engaging in the Sisyphean task that is the debate over the superior computing machine, and by the end of this article, you’ll see why. But I will talk about one of the arguments made.

The most common complaint I hear about Macs is this: “but you can get a PC with the same processor and the same about of memory for less money.” This is typically offered as proof that the PC is the better value, and that Macs are Overpriced (with a capital O). While there is no denying that one can, indeed, pay less money for a PC with the same processor that, indeed, has more memory than a Mac, it is the Overpriced part with which I wish to contend. Nothing is Overpriced when someone else pays for it. There is something, there must be something, that changes the valuation for those who purchase a Mac. Otherwise, they simply wouldn’t buy one.

This is where the Mac/PC rivalry becomes highly illustrative of the shortsightedness of third party valuation. Those who declare Macs Overpriced because some of the same components can be purchased for less money, albeit in a different form, are using an insufficient theory of value. Macs are not Overpriced, and PCs are not a bargain; neither are Macs a bargain. [1] When one says that any one exchange is “Overpriced,” they are merely making a subjective statement about their willingness to enter into that same bargain. I find the right to attend PGA events overpriced at $0, you would literally have to pay to me attend a golf tournament, and yet some pay hundreds of dollars for rights to admission. We are both correct.

Mises laid this out clearly in Human Action. “The concept of ‘just’ or ‘fair’ price is devoid of any scientific meaning; it is a disguise for wishes, a striving for a state of affairs different from reality. Market prices are entirely determined by the value judgments of men as they really act” (329). Just a bit earlier, Mises wrote, “[t]he ultimate source of the determination of prices is the value judgments of the consumers. Prices are the outcome of the valuation preferring a to b.” (328, italics original). To call a transaction “Overpriced” is to say nothing about that transaction or the goods therein; it is nothing more than pompous moralizing. Elsewhere in Human Action, Mises demanded that “[t]he notions of abnormality and perversity therefore have no place in economics. It does not say that a man is perverse because he prefers the disagreeable, the detrimental, and the painful to the agreeable, the beneficial, and the pleasant. It says only that he is different from other people … ” (95). There is nothing scientific, nothing economic, about making normative claims about the proper value of one good or another. These are just moral judgments and individual preferences masquerading as Divine Truth. Whereas one might proclaim in condescending shock, “$1200 for a MacBook! What a waste!,” another might equally state, “$5 for used shoes at a thrift store! Why, I cover my feet with paper sacks I dig out of a dumpster, and they work just fine!” Neither statement is more sensible. To that end, I recently tweeted: “PC Guy: Macs are overpriced, you can get i5 for $500. PC Guy: steaks are overpriced, you can get 500 calories by eating oatmeal.”

Let’s return to the Mac/PC rivalry. Compare the following statements:

  • Statement 1: “It’s foolish to pay $X for a Mac, when you can get the same processor and memory in a PC for $X — $Y.”

  • Statement 2: “It’s foolish to buy a downtown condo for $X when you can get the same square footage in the suburbs for $X -$Y.”

  • Statement 3: “It’s foolish to buy a set of Snap-On wrenches for $X when you get the same quantity of wrenches from a department store for $X – $Y.”

None of these statements say anything about computers, real estate, or tools. They only express a subjective valuation of the differences between certain types and classes of goods. Some people pay more for Macs relative to certain features of PCs because, ex ante, they believe that certain elements of Mac ownership other than processor and memory are worth the additional money spent. Some people pay more for a condo in a high-rise building than a house in the suburbs because they value something other than square footage enough to pay the additional cost for it. Some people buy Snap-On wrenches for the same reasons. They value something in those wrenches, before the exchange, more than in the other wrenches that is worth the additional cost.

As Mises said in Human Action: “[w]henever a buyer, in choosing between two things which chemists and technologists deem perfectly equal, prefers the more expensive, he has a reason. If he does not err, he pays for services which chemistry and technology cannot comprehend with their specific methods of investigation”(243).

Exactly what the element is that makes the exchange worth more in monetary value doesn’t matter. There must be some element to the exchange that persuades the actor to act. Perhaps people value the Mac interface. Perhaps the glowing icon on the exterior mesmerizes them. Perhaps they wanted to look like they had money to flush down the toilet. It doesn’t matter. In an ex ante valuation, they found something worth the additional cost of a Mac. Saying that certain aspects of Mac ownership do not justify the additional cost myopically focuses on only certain aspects of ownership and ignores the additional, subjective benefits that must be present by definition. It is the same with other exchanges. Perhaps people buy high-rise condos because they’re close to work, or require little maintenance. Perhaps people buy Snap-On wrenches because their work requires tools that have proven durable over time. Perhaps they make great drumsticks. It doesn’t matter. Nothing can be Overpriced if an exchange actually occurred. To call an exchange that someone else made Overpriced is to ignore the subjective nature of value in a most obnoxious way.

Is a Mac a Better Value than a PC, or is a PC a Better Value than a Mac? The Austrian economist knows that nobody can answer this for anybody else. Therefore, call me an idiot if you please, just don’t call my things overpriced.



[1] I am assuming that there is no coercion in the market for Macs and PCs. I will call something overpriced only when additional costs are thrust onto a consumer by the use of force. One can still contend that subjective theory of value holds, and that it was still a beneficial exchange with the coercive costs added, otherwise the actor would not have engaged in the exchange and would have used his resources to satisfy a different desire sooner. But I think that legitimizes the coercion to an extent and ignores that private actors would might have satisfied that desire in exchange for fewer resources.

{ 52 comments }

Walt D. January 2, 2012 at 12:45 pm

“Nothing is Overpriced when someone else pays for it”.
The zeroth law of Big Government! :-)

Michael A. Clem January 2, 2012 at 1:52 pm

Obviously, he means when someone willingly pays for it, not when they are forced to pay for it.

Nile BP January 2, 2012 at 2:22 pm

Of course it’s subjective, no denying it. But time, reality and recessions have an interesting way of eventually knocking some objectiveness into people’s subjective valuations.

Klippenstein January 2, 2012 at 5:12 pm

Precisely!! Had I read this first I could have saved myself (and you all) my long winded attempt to say the same in many more words:-(

Dan January 2, 2012 at 4:10 pm

“I will call something overpriced only when additional costs are thrust onto a consumer by the use of force.”

I’ve never heard that ridiculous definition in my entire life. The word “overpriced” is simply a subjective term, for when you feel something more expensive than similar items isn’t worth your money. You may prefer the more expensive Apple, and in that case, it wouldn’t be “overpriced” to you.

Since when does the term “overpriced” have anything to do with force or the State?

Klippenstein January 2, 2012 at 5:09 pm

Very clever argument I am sure. But the fact remains that the Mac interface mattered when the alternative was DOS or MS-DOS PCs. In those days, Mac users typically used a half dozen or so programs with relative ease while PC users struggled to use one program (typically, wordperfect)even if they had covered their walls with all the available line commands for easy reference. Mac users had a huge productivity advantage. Despite that, most people would rather endure DOS then use a Mac. The Mac was not cool, nor was it a status item. Today no material productivity gap exists between Macs and PCs. Except for a few express niches, they are functionally equalvalent yet the Mac is now cool and a status item. Credit the marketing power of Steve Jobs and Apple. So from the perspective of function, paying substantially more for one than the other is irrational. We know people do finanically irrational things all the time. Witness stock market bubbles, housing bubbles and personal bankruptcies. A horse by another name is still a horse. Not getting functional value for money eventually has negative consequences. Money saved could/should? always be used in the most intelligent ways. Once willing to pay more and spend foolishly, how does one stop?

Mitch Kordonowy January 2, 2012 at 7:18 pm

But, not everyone shops “from the perspective of function” so therefore all of those consumers would be indeed rational if they just liked the pearly white iMac to sync with their iPhone.
It does indeed have negative consequences, non-normative Austrian Economics shows that indeed.
Now, are you the one who writes the standard for “functional value for money” in all transactions?

Klippenstein January 3, 2012 at 12:46 am

No, but people do very stupid things with money (Exhibit USA, Europe financial crisis). To disregard value in purchases when your country is on the bink of economic collapse is worst than not smart, it is dangerous. That is why I think this article is not intelligent and not helpful. If I were to be most direct, I would indeed call it stupid. Economic thinking like this lead to the stock market crash of 2000, the housing and financial collapse of 2008/2009 and Europes current crisis. It has created needless human tragedy. Lets think past the end of our own noses (as it were) and connect the dots of where bad ideas take us….

Donald Rowe January 3, 2012 at 1:56 pm

Klippenstein,

The article is on point. This post of yours shows that you are concerned about the subjective values held by the people in power who have made the economic decisions that may lead to our demise. You are exactly right to deplore just how stupid some subjective valuations are.

That is your right; to make your own personal subjective valuation. About anything you desire.

But you do not have the right to force your subjective valuation on the rest of humanity.

Your beef is with the actions those people have claimed the power to force acceptance of their own valuations, not the fact that their valuations, like everyone else’s, are subjective.

JFF January 2, 2012 at 9:49 pm

We just retired a ten+ year-old PowerMac in my parents’ house that is still operational despite an outdated OS – it’s being repurposed into a server and replaced with a Mac Mini due to space issues. We’ve had at least three PCs go by the wayside in the same amount of time. Both my iMac G5 and my brother’s original MacBook are still going strong. None had issues of any kind. I’m pretty sure that’s “functional value.”

No intention of buying a PC ever again.

Klippenstein January 3, 2012 at 12:50 am

I have a Dell PC (2100 model) bought in 2001 that still works perfectly fine. Don’t use it alot right now because I need mobility so my main computer now is a $299 SAMSUNG netbook. Such anecdotal evidence is sweet, but useless.

Bala January 3, 2012 at 1:41 am

I suspect you are quite “tech savvy”.

James January 2, 2012 at 5:42 pm

Do people even bother to read through posts anymore before commenting?

Klippenstein January 2, 2012 at 6:26 pm

Intelligence requires sometimes reading no further. The whole premise of this argument is perhaps so flawed that intellient people stop reading early and more on.

Clearly I must not in that Elite Intelligent group or I would not be coming back to this … but, this past summer, I met people in China who would spend all to get an iphone as a status symbol. When I suggested they might better save their money to buy a home or other necessity, they were not convinced. I just don’t understand that … perhaps this author does.

Mitch Kordonowy January 2, 2012 at 7:32 pm

I wonder, Klippenstein, if a picture of my loved ones in your wallet would be a suitable substitute in the place of yours, that is if you use a wallet, and keep pictures of loved ones in it.
No?
My point is one of the fundamentals of the subjective-theory of value.
No one can be the arbiter in everyone’s affairs, it’s completely illogical.

Klippenstein January 3, 2012 at 12:59 am

Really?? What if bad economic planing, thinking makes them wards of the state … people living on welfare when they could have been perfectly middle/lower middle class if they had used some basic economic intelligence? What if you believe you can never pay too much for a house because you believe that house prices will keep rising forever. Do you really believe that there is no “intrinsic” or “real” value to anything? Do you really believe that paying $100 for a can of coke is as intelligent as playing 30 cents?

Bala January 3, 2012 at 1:37 am

“Do you really believe that paying $100 for a can of coke is as intelligent as playing 30 cents?”

Do you really believe that THIS is the issue being discussed? That only means that you have completely failed to comprehend the article.

To make it clear let me rephrase your question. Do you really believe that I am foolish because I am ready to pay $100 for a can of coke while you are ready to pay only 30 cents?

(Please note that I DID NOT say “the same can of coke”. That’s the point you are missing.)

CFB January 3, 2012 at 2:13 am

Given the choice between paying $100 vs. 30 cents for something, an individual would almost always choose to pay 30 cents (I say almost because I’m sure that there is some circumstance, somewhere out there, that may be to the contrary). The author doesn’t seem to be disputing that.

Largely, the author is discussing two different individuals evaluating two different products, so a more appropriate example would be one in which both you and I are attempting to choose between two different beverages, one of which is $100 and one of which is 30 cents. And what he is attempting to point out, if I’m not mistaken, is that we will evaluate the value of these objects subjectively, based on our own personal sets of standards.

For example, I may value beverages solely for their volume. The taste, packaging, calorie content, etc. make no difference to me; I care only about how much liquid I am getting for the price I am paying. In this case, and assuming that the $100 and 30 cent beverages are of the same volume (say a 12 oz can), I will clearly choose the 30 cent beverage. This is consistent with what you explained in your comment.

You, however, may value the products differently. To you, it may make a great deal of difference how the beverages taste, or how they are packaged, or the effects that each one might have upon your body. Imagine that the 30 cent beverage is extremely bitter, and that the $100 beverage is second-best only to the nectar of the gods; it would make no difference to me, since I care nothing for taste. But to you, it might make a great deal of difference, and you might choose the $100 beverage. Or imagine that you are a diabetic, and so for some reason are prohibited from drinking the 30 cent beverage, but can gain valuable nutrition from drinking the $100 beverage. There are any number of circumstances under which you might prefer the $100 beverage to the 30 cent beverage.

This, I believe, is the point that the author is trying to make: since you and I are different individuals, we bring a different set of standards to the table each and every time we evaluate products against each other. We bring everything from our incomes to our upbringings to each economic decision we make, and we compare products based on an intricate web of those traits. Thus, to compare the decisions we make, and for each of us to comment on the validity of the choices of the other, is invalid, since all those choices have been made according to different standards.

This is why the author has chosen to compare PC vs. Mac. Had he chosen to compare the same Mac for 30 cents to the same Mac for $100, of course you would be correct. But that would overlook the conditions necessary for the explanation he is providing as to subjective theory of value.

Klippenstein January 4, 2012 at 12:46 am

True, the author is talking about two different products, but my point is functionally (and technically) the products are remarkably the same yet their costs substantially different. Perhaps the point is that people rationalize paying more or less based on which product they WANT to buy.

Bala January 4, 2012 at 4:14 am

“Functionally” is in your opinion. How do you know what is the “functionality” I expect? What a functionality means to a person also depends on how well that person understands the product and the technology. What if I am a lay person who knows nothing about these and has only the user experience to go by?

“the products are remarkably the same”

Oh!!! I have used PCs for over 10 years now and till I got my Mac Air recently, I never even imagined that you just had to fold your laptop to stop working and then when you wanted to start working, open it, wait for 1/2 a second and just continue. Given my absolute requirement for a light laptop with a large screen, I have suffered enough with Windows based PCs and enjoyed my experience with my Mac Air to take anyone who claims that the products are “remarkably” the same very seriously.

That is just to say that “same” is your personal assessment and others may not share it. Consider yourself intellectually and technically far superior if you wish to, but that does not negate the author’s argument about value being subjective.

Mitch Kordonowy January 3, 2012 at 11:39 am

Klippenstein, Coke or Pepsi, of same quantity, same age, which one has more objective value?

Empking January 2, 2012 at 5:48 pm

Surely when somebody casually describes something as “overpriced” they’re not pretending it has scientific meaning. Just that they simply have “a striving for a state of affairs different from reality” where things that they don’t value, such as aesthetics, aren’t valued by other perople.

I think somebody can call something overpriced without rushing off to get the government to put in place a price ceiling.

David C January 2, 2012 at 6:07 pm

As a computer programmer, and somebody who has worked in the industry, I see this from a totally different perspective. Macs are proprietary technology, PCs are not proprietary technology, MAC requires the violent force of the state’s IP laws to impose it iron curtain of conformity, the PC is more like the free market. In the MAC, this shows up as a high price and a forced interface standard, in the PC this takes the form of strong price competitiveness and lots of variety. Open source and non proprietary interfaces, tend to dominate the PC. The MAC used to be a lot more proprietary, but the cost got so out of hand that they had to start to use non proprietary software and interfaces under the hood more and more, even though they still window-dress a proprietary layer between them and the user. When it came to proprietary, they became better than Microsoft, but that’s not saying much.

All the energy they put into interface could have set the defacto standard, yet all that effort has gone to waste because the market is developing its own non proprietary standard (with x86 Linux), and like all proprietary technologies, it will eventually not be able to keep up, and will fall by the wayside. You can see this a lot more clearly in the cell phone market where Andriod has just as pretty of an interface as the iphone, but is not attached to any one platform by vendor lock-in, has been outpacing iphone sales 2:1 and will eventually become the standard.

Klippenstein January 2, 2012 at 6:37 pm

Good point. Also important here is that Macs command what 5% of world PC market share? Or is it less. PCs 80%? Others like Linux, 15%. So most people are not being fooled into paying up unneccessarily. Maybe this 5% is drawn disportionately from the 1% Occupy Wall Street people are up in arms about … people for whom value and price are no object. Perhaps Apple should charge more.

Alpheus January 20, 2012 at 6:37 pm

As someone who uses Linux, I would also agree…except for one thing: there ore certain people in the Free and Open Source communities who are absolutely dogmatic about never using proprietary software. For me, if anyone wants to distribute their work only in a binary format, and anyone else wants to use such a restricted device, then I don’t see the problem: it’s Subjective Valuation all over again.

I don’t want to trade my freedom over to a company (so I would prefer Android over iOs, if I ever chose such a device), because of my particular value choices.

Norman January 2, 2012 at 6:23 pm

This argument could be applied to Stock markets and it has been: its called Modern Portfolio Theory and the efficient market hypothesis which states that the right price for a stock is what the market it willing to pay for it. Deeper thinking people like Warren Buffett and other value investors disagree, suggesting that a stock (or company) has an intrinsic value. The quoted price is either higher or lower then that value. Similar thinking DOES apply to many goods we buy. It makes no rational sense to pay $10 for a potatoe if you can get a similar (nontoxic) potatoe for 10 cents. Everyone would agree playing more is stupid. If the problem is having too much money, you might as well burn or melt down the extra $9.90. At some point, valuing similar functioning computers become like valuing commodities: it does not make sense to pay when you get nothing more. With all due respect, I think anyone who has actually balanced a checkbook recognizes the writers argument as inane.

Alpheus January 20, 2012 at 6:43 pm

I would not use a Mac, because I tend to think of the devices as “overpriced”…but I also don’t like the Mac’s OS, or some of the technical decisions they have made. While I question their sanity, I do not begrudge anyone who likes the sleekness of their hardware (Mac designers have a certain flair for style), or even the OS and hardware decisions made.

The Motley Fool makes a good case that companies have intrinsic long-term value; nonetheless, even in looking at long-term value, you nonetheless make decisions based on preferences. Would you prefer to buy Intel stock, or Coca-Cola, or both? Both would likely be good choices, and if you have reasons to buy one over the other (you may be intimately familiar with hardware, for example, but you never drink soft-drinks), then you will likely be considerably happier buying Intel stock, even if in the long run, Coca-Cola performs better.

Chad January 2, 2012 at 7:09 pm

What also should be noted is the signaling function of prices getting flipped on it’s head on occassion. There do exist people who when they want a quality item will opt for the more expensive due to the equating of higher price with higher quality.

Some people do behave quite irrationally in this matter, but I would think they would be the exception rather than the rule.

Klippenstein January 3, 2012 at 1:06 am

Good point. Now you are talking about behaviour economics. For example, according to a wine tasting study reported on by the Economist recently, even professional Wine tasters routinely pick the most expensively priced wine as the best tasting one (even if you present them with the same wine at rising price points).

CFB January 3, 2012 at 2:28 am

I think that, at least sometimes, this can be explained through subjective value too, in a way (although to call it that might be a bit of a stretch…)

I think, or at least hope, that most people would admit that a higher price of something doesn’t always necessarily mean higher quality. In fact, to use Klipperstein’s example of wine (which is a good one, since many–myself included–know little about wine but find themselves deciding on the product more often than their limited knowledge might warrant). I will confess to picking out a bottle or two based on an elevated price, even though I fully understand that I might’ve gotten a better wine for a cheaper price. But my action, I think, demonstrates two things: (1) that I generally accept, despite even my awareness of exceptions, that higher prices often connote higher quality, especially from trusted retailers, and (2) that my willingness to then spend on more expensive wine without being absolutely certain of its quality demonstrates an unwillingness to become an expert in wine.

That first thought is definitely up for debate, but I’m not going to say anything more about it here. The second one is the more relevant part.

There, the issue is that I don’t particularly value becoming a connoisseur of wine. I might say that I do, or wish that I could be, but in the end I choose to devote my time to other pursuits. I choose to devote my time to those other pursuits because, to me, they are of a higher value and higher priority than becoming a wine connoisseur. Therefore, my willingness to purchase a bottle of wine at a higher price and take a gamble on its quality actually demonstrates a preference for both (1) probably getting an okay bottle and (2) doing things with my time other than being a wine connoisseur. So although in the end I may have gotten less value in terms of the bottle of wine I have (perhaps a slightly worse bottle than I could have gotten for a slightly higher price than I could have paid), I actually have more value overall, since I took the time I would have used to research wine and learn about purchasing it to do other things that I valued more.

It should also be noted that this is true by definition, and is primarily descriptive. It has to be true, since those were the choices I made. If it were not true, I would have made other choices.

As for Klippenstein’s example concerning the professionals, that is a different story, and one to which I do not have an answer. Although I believe that he is right, and that is more a question of behavioral economics.

Klippenstein January 4, 2012 at 12:39 pm

I am interested in sound economic thinking so we can collectively build weath for ourselves and our nations over time. I think you might agree that, from that perspective, this article — however provocative — is really unhelpful. Some might even call it inane. From time to time I blog about these things at https://klippensteincapital.wordpress.com/.

Alpheus January 20, 2012 at 6:50 pm

Why should I care a darn about the wealth of my nation, or even “collective” wealth? Ultimately, I care about my individual wealth, but what I may decide for myself as “wealthy” may be to you “abject poverty”.

If I can provide for myself and my family doing work I enjoy, stay out of debt, and adequately prepare for the future, what matters to you whether I use a PC or a Mac? If I choose the more expensive option (which, depending on the circumstances, may very well be the PC) and it makes me happy, why does it matter one way or the other to you?

Sound economic thinking would dictate that this decision be left to me, and not to some nosy bureaucrat who thinks he knows what’s best for me!

Vivek January 3, 2012 at 2:09 am

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seo

dlind January 3, 2012 at 5:27 am

Correct me if I’m wrong, but…
2. You also assume perfect knowledge (to an extent). If a person were to buy a Mac under the delusion the hardware was better (or the Mac would some how render them impervious to viruses / ) then the good would be objectively “overpriced,” as one of the factors driving its valuation would be false.

I mean, the discovery that blood letting was in fact really stupid probably drove the price of fresh leeches down, I’d say that would be an indication they were overpriced.

CFB January 3, 2012 at 7:53 am

I would agree, with the caveat that they might be overpriced for the purpose of medical remedies. But, if the next day, it became clear that they were delicacies, or that they were important in the production of fuel, or that they became historical interests based on their former usage in the medical field, or anything really, it’s conceivable that the price of leeches could even have been pushed up higher than it was before. This still doesn’t mean they would have been “underpriced” before, since the price isn’t relative to some intrinsic value, but rather depends on the utility that consumers subjectively expect to gain from it, to use the term loosely.

In fact, it’s hard to say that a lot of things that people pay for are overpriced. To me, the term starts to lose its meaning. I mean, if something is overpriced, then how can anybody pay for it? To me, the word “overpriced” simply implies the speaker’s opinion that the same good could or should be gotten at a lower price, and thus that there is something wrong with paying for it at the current price. But the fact that somebody pays for it, by definition, means that it cannot be overpriced, at least not to that consumer. It’s still true that they might have gotten the same good for less elsewhere, but (here’s the key) their willingness to pay the price that they pay also demonstrates a willingness to save time by not conducting an entire investigation into the entire market for the good.

Furthermore, I think “overpriced” and “underpriced” imply that there is some objective price to things, which, if I’m not mistaken, has been shown by the Austrians not to be true. And there are examples of it all around. I’ve heard that, for a time, razors (not the blades, but the actual apparatus to which they attach) were sold at a loss and even given out for free, that X-boxes are sold at a loss, and that Kindles are currently being sold at a loss. But does that mean that they are underpriced? To suggest so would be to imply a “cost-of-production” or “labor” theory of value.

To return to your point (“2. you also assume perfect knowledge (to an extent)”), I think that a good example of this would be the “Extreme Couponing” television show (not entirely sure that is the name, but many are familiar with the show and a Google search should pull up the results I’d assume). In this show, obsessive-compulsive subjects spend all of their time tracking down, printing out, and clipping coupons in order to put the best combination of deals together, and often get something like $800-$1000 worth of groceries for under $5. I have even seen instances where, through some loophole in the coupons, the store ends up paying the customer in addition to providing them with the groceries.

Those people could be said to have as close to a “perfect knowledge” of couponing as is possible, and they (obviously) tend to get tons more for their money than the rest of us, in terms of their grocery shopping. But, the fact of the matter is that this approach is inefficient. Even my siblings, who are in grade school and have no sense of economics, exclaim on a regular basis that “with the time they spend couponing”–which is a full-time job for them, 8 hours a day–”they could make enough money that they could pay for all the groceries and they’d still have more money.” So the fact that not everyone is an extreme couponer demonstrates that others pay higher prices in order to devote their time to other things.

Even without perfect knowledge, the higher price demonstrates a preference for time to devote to other tasks. The couponers would suggest that what we pay is “overpriced,” but to us it must actually be “underpriced,” since we value the time we save by not “extreme couponing” even more.

Virginia Llorca January 8, 2012 at 10:52 pm

Leeches, in fact, do continue to have value in certain medical protocols, yet today.

MNPilot January 3, 2012 at 1:15 pm

Could this same subjective value argument be used to imply that fundamental analysis of individual securities (i.e. valuation of stocks) is essentially flawed in theory?

In other words, analysts that “find” an objective valuation of a stock which currently differs from the market price are essentially saying the stock is either “overvalued” or “undervalued.” Does this undermine the basic tenets that fundamental analysis is built on?

I understand that the inputs in an analyst’s financial model are subjective in their own regard, but my focus is not on that. Rather, I’m interested in the final product – the so-called correct price of the given stock, whic differs from the current market price.

Thoughts?

nate-m January 3, 2012 at 1:59 pm

Well stocks are not consumer goods. They are not purchased to simply “have”.

There is a expected return. In the past people would pay attention to things like the income balance and expectations of the company they are investing, or the annual dividends that the stock would pay out and such things.

Nowadays, probably due largely to the printing of money and essentially zero cost credit, investors focus most of their efforts speculating on what other investors are speculating that they are speculating on. The prices and trading of stocks is just completely divorced from any sort of reality.

So yeah, nowadays buying stock is like buying a mac book, sorta, rather then investing. It’s completely batshit insane system though. A tower of babel built on the shifting sands of monetary and regulatory policy.

Bala January 3, 2012 at 6:57 pm

It actually very simple. There is no such thing as a “final stock price”. There is only a price in a particular transaction. The price in any transaction tells us two things.

1. The seller of the stock “estimates” the share to be worth less than the price agreed upon,
2. The buyer of the stock “estimates” the share to be worth more than the price agreed upon

This combination is what enables the exchange. The reason there is no such thing as a “final stock price” is that there is nothing “final” about it. Valuations change. The valuing individuals change. And the price settled at keeps changing with that. That’s all there is ti it as far as I understand it. Do correct me if I am wrong.

CT January 4, 2012 at 11:18 am

Stock valuation is entirely subjective. The price simply reflects investors’ best estimates of what future cash flows are going to be and the discount rates these investors require. A security is ‘mispriced’ only in the mind of the individual who disagrees with either the information reflected in the stock price. In the not too distant past, the best way to be successful in stock investing was to pick high quality firms with high returns on capital and great managements while being careful with how much growth you are paying for. Unfortunately, this style of investing is falling to the wayside as central banks and money printing are completely distorting financial markets. Given this, ABCT can certainly help an investor play the cycle in terms of timing and which types of industries to invest in (while sticking to high quality companies as described above). Even then, the constant threat of an unforseen credit contraction renders this strategy extremely risky.

Tom January 3, 2012 at 2:13 pm

There problem the author faces is that he is stepping into the realm of geekdom, whose arguments are always pompous. To a computer geek, all that matters with hardware is performance and capability. So, when you argue with a computer geek, you have to understand that a very different value set is at play. Maybe you value something other than benchmarks and available software, and maybe that makes the price difference. But don’t expect this computer geek to understand it.

A PC specced the same as a Mac will be significantly cheaper. Of course, the Mac OS is preferred by some, but in terms of core functionality, both Windows and Mac OSes are basically equivalent. The Windows machine has more software available for it, of course. The argument is not between steak and oatmeal, it’s between a $100 steak with a restricted side dish, and a $20 steak that tastes exactly as good, with endless numbers of sides in every possible configuration you might want. And that’s not getting into the ability to upgrade a PC vs a Mac.

That said, you are and should be absolutely free to pay more in order to get less in terms of hardware and/or functionality. Geeks will, of course, impose their value assessment on your purchase, and deride you. Then again, I doubt you can understand blowing $150 on Skyrim just for the pretty art book and dragon statue when $50 would get the bulk of the experience (the actual game).

Dan W January 3, 2012 at 5:21 pm

Is 200 year old scotch overpriced? Sure it’s tasty but at over a thousand dollars a bottle is it really that much better than, say, a 200 dollar bottle? Or a can of coke? Or a $20 bottle of wine? Or of a $30 slice of prime rib or $40 lobster tail?

If someone will pay it, it’s not overpriced unless that price is manipulated by forces outside the market (protectionism, price fixing, etc)

tim January 3, 2012 at 6:38 pm

People are so silly and irrational. If only we had a cadre of intelligent academically educated bureaucrats planning our daily schedule along the most efficient and socially optimal lines like the little ants we are.

Martin OB January 3, 2012 at 9:42 pm

Perhaps they [the buyers] wanted to look like they had money to flush down the toilet.

Which is precisely what most people have in mind when they say some item is “overpriced”. Get it?

Rafael January 4, 2012 at 7:48 am

Do Mac OSX get Virii?

nate-m January 4, 2012 at 11:15 am

No, but occasionally viruses are.

Norman January 4, 2012 at 11:54 am

They are really as vulnerable to viruses as PCs. You have to remember that viruses are just programs. Think of them as bad programs. The main reason Macs have less reported viruses then PCs is simply that less programs are written for it: both good and bad programs. This is because the Mac has perhaps 5% worldwide microcomputer market share versus 90% Market share for Windows PCs. As with good programs, bad programs written for the PCs address a much, much larger audience or, if you will, virus programmers get more bang for their buck by writing for PCs.

Klippenstein January 4, 2012 at 11:47 am

Toward a rational model for determining the value of a Mac vs. a PC:

Ok I admit it, I am looking at microcomputers as tools, be they Macs and PCs. So I suggest asking a few questions: 1) What do I do with my microcomputer (i.e, what am I buying it for)? Make a list. 2) Is there something on this list one brand of microcomputer enables me to do that the other does not? 3) Of the tasks/things I do with my microcomputer, do Macs let me do certain things faster (or visa versa)? 4) Again, from this list, is there a demonstratable difference in the quality of product one computer enables me to create?

Now take all these factors and ask yourself where the differences are and the differences are significant. I suspect most microcomputer users will be unable to identify a difference that will have a meaningful impact on their work/productivity (But correct me if I am wrong — I used Macs exclusively from 1984 through 2001. Since then I have used primarily PCs). How much more economic value does any usage advantage create?

Adopting this kind of analysis, Mac users will need to come up with at least a $500.00 value of additional advantage for avoiding a PC purchase. $500, for most people, represents close to $1,000 of pre tax earnings (i.e. 50 hours of work at $20 an hour). Are you ever going to save yourself that much time by using a Mac over its life time?

A microcomputer may also be art. But valuing that is a whole another exercise and, I would think, much harder to do. At the level I suggest, the microcomputer is a functional tool that is used to do specific things. As such one can rationally argue that one is more expensive visa vie the other for the function it provides. As Art? Here I have no doubt the Mac, in most cases, wins hands down. So perhaps THAT is what people are willing to pay up for.

P.S. It is also interesting for a moment to ask, what is extra $1,000 of earnings paying for? Nicer design perhaps, but since the hard ware componients are essentially identical, the extra $1,000 is paying for Mac software, primarily the Mac OS? The Windows OS on a PC costs between $30 and $50. In contrasts the Mac OS costs people more than $500. Is it really worth 10 to 15x the Windows software on any objective criteria?

bill wald January 5, 2012 at 3:57 pm

I use both systems and hate both equally. Freeware systems are worse. Boggles my mind that no one in the entire world has come up with a better operating system. Where are the Chinese, Russian, Japanese, and European techies? All working for MS and Apple?

Azathoth January 7, 2012 at 1:56 pm

Here is perhaps, the best summation of this.

Some people do not shop at Wal-mart. They don’t have to dislike it. They don’t have to be anti-Wal-mart loons. They can even be people who see the merit of Wal-mart ‘for those who need it’. But they personally, do not shop at Wal-mart.

Instead, they shop at a ‘better’ venue–one with less of the stigma of poverty and classlessness attached.

And they pay more for their products that the people who shop at Wal-mart. The product could be a Playstation 3, a bunch of Chiquita banans, a bottle of Coke. They pay more, for the same brands, so they don’t have to be Wal-mart shoppers.

What these people are, collectively, is stupid. Paying more for the same product is stupid. The only time it’s acceptable is when you have no other choice.

If there was a major difference in computing between Apple and PCs once, it is gone now.

People who use Apple products now are paying more because it’s cooler, to them, to use those products.

Call stupidity ‘subjective value’ if it makes you feel better.

Virginia Llorca January 8, 2012 at 1:26 am

Husband wears “tincloth” jacket from Filson. Hundreds of dollars. Wife wears eleven dollar parka from WalMart. Wife says, “Why would you pay hundreds of dollars when eleven dollars keeps you just as warm?” Husband says, “It’s a personal choice.” Wife says, “It is also a personal choice whether you want your mortgage payment to be on time or late.” I think “personal sets of standards” are frequently influenced by emotional criteria and something like “value” can be a very abstract notion and cannot always be explained by economic theories. “Stigma” can be a totally obvious and concrete thing but can also be an invention or misperception influenced by one’s own ego and/or emotional history and not be apparent to the casual observer. Ah, yes. “Coolness”. A pearl without price. Recently read an article stating that is one word that bucks all the popularity trends. “Cool” is understood by everyone, and has been in use for a long time. Valued by everyone? You should listen to a second grade boy asking his grandma what makes people cool and her attempts to explain that.

Alpheus January 20, 2012 at 7:08 pm

I really want a small computer I can carry with me everywhere I go. I have many choices, ranging from $250 to $1000 or more…but I value feeding my family and paying rent more.

Logical? Probably. But there’s a whole lot of emotion going into that one logical decision! (For one thing, I want my wife and children to respect me as a provider for my family, and I can’t earn that respect without earning it!)

That’s the thing about subjective value, that so many commenters here seem to be ignoring: when presented with a choice, everyone makes a decision based on hundreds of logical, pseudo-logical, and downright emotional inputs. Is it any wonder that people make so many decisions? Even the husband who wears that “tincloth” jacket goes through that decision process…and if he didn’t take into account the wrath of the bank and of his wife for missing his mortgage payment, he’d better do it next time! And, chances are, he will.

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