All Value Is Subjective, Experimental Economics Style

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The experiment is over: blogger Kyle MacDonald has, in a year's time, traded up a red paper clip for a three-bedroom, 1,100 square foot home. All the details via an AP account.

Reason's 2002 interview with experimental economics pioneer Vernon Smith. (And no, MacDonald's stunt was not done as a deliberate attempt to test any given economics principle empirically.)

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  1. This guy is brilliant. I sit in awe, looking at a whole drawer full of paper clips.

    No?

    How about a rubber-band ball, made with gen-u-ine US Postal Service rubber bands? It’s recycled, even!

  2. Most of the transactions were analogous to buying lemonade from your neighbor’s kid’s stand. It reflected sympathy more than any underlying value.

    Some of the parties were also seeking some “free” publicity in the process. I’m surprised GoldenPalace didn’t get involved at some point.

  3. If he got a house for a paper clip, what could I get for my tiger-repelling rock? I’ll paint it red if brings up the value.

  4. Most of the transactions were analogous to buying lemonade from your neighbor’s kid’s stand. It reflected sympathy more than any underlying value.

    Yeah, I’m with KipEsquire and highnumber. I think this was a really cool stunt. But the only reason it happened was from the goodwill of internet strangers (and perhaps for some free publicity).

  5. At the risk of getting overly pedantic, guys, this was exactly the point of the way I framed the entry in the title: that economic value is inherently subjective and includes all sorts of things beyond a cash nexus (that which some fear free markets reduce all to) that embraces sympathy, desire for publicity, and just being intrigued with being part of this weird stunt.

  6. The fact that at least one trade depended on a state actor ruins any lessons about the free market here.

    The real lesson: gin up enough public sympathy and you can dupe the tax payers into giving you a free house.

  7. Overly pedantic post! Take a drink, everyone!

  8. But just think: Because of this stunt, that red paper clip is now a valuable collectible!

  9. I’m not so sure it’s such a great deal. I mean, have any of you ever been to Saskatchewan?

  10. Sounds kinda like a old Scrooge McDuck story I remember reading as a kid – something about Donald tricking Uncle Scrooge into thinking fish was the new legal tender. Step by step, in a manner simliar to the one described above, amasses a fortune – in fish. Any Carl Barks fans out there who can refresh my memory?

  11. Jim – I used to have a copy of the Donald Duck comic book that contained that story

    you have excellent recall! good associational/ relational memory!

  12. I agree the guy’s brilliant.

    But (and my wife says I’m a party pooper about this) the whole thing bugged me because basically I think a lot of people were turned on by how he was using barter, outside the “cash” economy, and finding these personal transactions where he had something that someone else valued & they had something he valued, etc. And it just seemed so special that he was making all those connections & it somehow seemed quaint & anti-consumerism. “Oh, isn’t that really cool? They trade items & they both end up with something that they want more. What a great idea!”

    My point is that that is EXACTLY what we do with every transaction we take part in – each one of us, dozens of times a day – except that we use cash to make the transaction infinitly more liquid. But, we’re exchanging things of greater perceived value to each participant in the transaction.

    So, except for appreciating the guy’s scam, any interest in this, to me, just seems to come from having never actually thought about economics in the first place.

    I don’t know. Maybe I’m reading something into it that isn’t there. But I’m playing the crotchety old man on this one.

  13. biologist: thanks. If anybody can direct me to the specific story, click my name and post it on my blog.

  14. Eric, have you been to Saskatchewan? As the title says “Value Is Subjective”, and some of us love Saskatchewan.

  15. Here’s the Unca Scrooge story in question,
    from Dell Four Color #456
    (a/k/a US #2) March, 1953.

    http://www.comics.org/details.lasso?id=10474

    Somethin’ Fishy Here
    (Sequence 3 , 5 pages )

    Feature Story: Uncle Scrooge

    Credits:
    Carl Barks (Script), Carl Barks (Pencils), Carl Barks (Inks),

    Reprinted: Disney Comics Album 2: Uncle Scrooge 156:

    BTW, Newfoundland and Labrador used to use cod as currency, much as the Virginia planters used to use tobacco leaf. Barks likely knew that.

    Kevin

  16. Is capitalism great or what? Hey, it doesn’t HAVE to be with money. It’s the economic freedom that’s the important thing. Freedom baby! Yeah!

  17. All Value Is Subjective

    An observation by neo-classical economics that is so sage and right-on cuz it’s true not just of economic behavior, but of the human condition.

  18. Hey, it doesn’t HAVE to be with money. It’s the economic freedom that’s the important thing. Freedom baby! Yeah!

    I don’t know what the Canadian authorities will do, but here in the U.S., the IRS would be after his ass for 14 trades worth of income taxes not reported. The low level stuff would go unnoticed, but a house? That’s noticeable income.

  19. This is a great example of how the subjective nature of value results in positive-sum outcomes for trade, and it also shows the value contributed by the trader.

    MacDonald obviously benefited a great deal from his trades, but each person he traded with also benefited — whether it was just having fun, gaining a useful object, or getting publicity for a movie.

    This belies the common idea that if a trader buys something for $X and sells it for $Y (Y > X), then the trader must be ripping off either the initial seller or the final buyer. But facilitating the trade has value in itself.

    None of the people MacDonald traded with would have likely ever met if hadn’t been there. So not only did he benefit from those trades, the others involved benefited from trades that would have never happened without him.

  20. “This belies the common idea that if a trader buys something for $X and sells it for $Y (Y > X), then the trader must be ripping off either the initial seller or the final buyer.”

    This is only the result of the simplistic idea that if a good sells for $X, then it MUST be worth exactly $X to both the buyer and the seller, and thus the exchange is a zero-sum game.

    While convenient, this ignores the fact that, in reality, the value of the traded good is greater than or equal to $X for the buyer and less than or equal to $X for the seller. Hence, exchanges are most likely to be positive-sum games.

  21. On the other hand, there may be a net loss in total value created given the negative externality that we are now all painfully reminded of the careers Alice Cooper and Corbin Bernsen.

  22. And thanks be to DARPA for enabling a larger pool of relative value to be connected at each transaction…

  23. Sometimes a paper clip is just a paper clip.

  24. I wonder how the town happened to come across this house. In Canadia, do they seize (read: steal) your property if they find a gram of weed on you, like they do in the states?

    Either that, or some poor sonofabitch inherited the house, and via crooked zoning laws, the property taxes skyrocketed…and the poor sunofabitch wasn’t able to pay said taxes, so the town took the house.

    Otherwise, I don’t see too many other ways that a public body can come into ownership of a private single-family residence.

  25. But just think: Because of this stunt, that red paper clip is now a valuable collectible!

    Yes! And that very red paperclip can be yours for only $19.95 plus shippping and handling! Just send the payment via Paypal and I will ship it out to you. You, too, can be the proud owner of a valuable collectible!

  26. I see this pretty much as panhandling with a cleverer than average sign. Maybe performance art. Does that make me a spoilsport?

  27. What’s the H&R drinking game rule for double posts (accursed squirrels). 🙂

  28. Isaac:

    The rule is obvious. You drink twice!

    Kevin

  29. Part of the equation is the rationale for yard sales and/or donations to Goodwill.

    It gets stuff out of your house that you do not use, is taking up space, and you have to clean. What you get in the transaction is a more free space, meeting some people, some smiles and thank yous, and maybe a quarter.

  30. Kevin

    Holy crap. We’d all be dead from alcohol poisoning if we followed that rule. 🙂

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