Perceived Value

There is no intrinsic value of anything. The value that we attach to things, situations, beings or processes is all subjective. (In order to make this clear, I used the term “perceived value”, instead of “subjective value”, which may be too fuzzy for this context.

I know that for many readers this can be a very strong statement. Probably as strong as the one in the opening, which claimed that money doesn’t exist.

And yet, this is a fact.

The easiest way to demonstrate this is by example. Let’s think of something that holds a certain value, like a kilo of gold. Traditionally, gold has been associated with valuable things. Historically, this may have been related to the fact that gold “doesn’t decay”, or doesn’t change, hence implying that its value or its characteristics are constant.

Let’s really think of a kilo of gold and try to understand its value. From where it comes? How is it established?

Is it the fact that you can store a kilo of gold in your bedroom? Will that make it valuable? In what way?

Or is it the fact that you can exchange that kilo of gold for things or services you need now? But what happens if you get some of the things or services from other sources at a lower “price”? Or even for free? How does this makes the gold valuable?

Or think about the fact that two persons have that kilo of gold at the same time. Would they have the same needs? Would they exchange it for the same things or services? If so, are there any differences in age, social status, gender, cultural background, or life expectations that will make that kilo of gold change its value for any of them? If one person has already 100 kilos of gold, this one kilo will increase his net worth by only 1%. If the other person has no gold whatsoever, that kilo will increase his net worth by plus infinite.

Context and Value

Any thing, any situation, any interaction derives its potential value based on the context. By context we understand the current characteristics of the environment for a given actor. It includes physical, emotional, financial status of the actor (or stuff that we can define as “internal”, or “personal”), as well as specific “outside” environment factors, like place of living, weather, social sentiment in that specific area, cultural constraints and so on.

Context changes all the time. Every second. Our clinging to certain images or concepts may make some things or situations seems “immutable” but in reality everything changes. Body gets older by the second, weather parameters like temperature, atmospheric pressure, humidity change constantly, and all the persons around us are going through the same, incessant changes.

By now you should at least agree that value is different for each and every one of us.

But what are the factors that are influencing this “perceived value”?

The first empiric observation is, obviously, context. Perceived value changes based on the context specifics.

The easiest example would be a suitcase filled with 100 dollar notes. If you’re on Wall Street, that suitcase has a certain value. Even that value can be expressed in many ways: financially, the suitcase value would probably be equal or bigger than the exact sum of all the notes (one can use the cash as collateral for a bigger loan, for instance, since we’re on Wall Street). In terms of personal expectations, that suitcase may be the guarantee of physical survival, since you can get enough food and shelter for the amount of notes in it for many weeks, months or years.

But let’s change the context and suppose you’re on a desert island. The same suitcase, filled with the same notes, will suddenly change its perceived value. Financially, its value will be zero, since there won’t be anybody with whom you can exchange notes for goods or services. In terms of personal expectations, you may use the content to make fire for a week, probably (provided you have something to start the fire with, that is).

Context changes the perceived value of anything. Being it a thing, a skill, a person, an interaction with somebody, anything.

Expectations and Value

Closely related to context is the other major modulator of perceived value: expectation.

By expectation I mean the prediction of the outcome of a certain action and the attachment to that outcome.

Our constant learning creates a certain behavior, a certain set of patterns that gets reinforced if the outcome is consistent with our expectations, or weakened if the outcome is inconsistent.

The most basic example is putting your hand on top of a burning candle. If you don’t have any expectations at all, then you will just stay there, paying attention to your sensors. And, obviously, you will feel intense pain. You learned what to expect from that action. From now on, your expectations towards fire will be very well defined. Next time you will want to put your hand on top of a burning candle, you will expect pain.

Similarly, you may also expect to feel pleasure, if you eat a certain type of food – let’s say a sweet one, like ice cream. Once you get used to the taste of ice cream, your expectations towards ice cream will be well defined.

Now, let’s take this up a notch and think about expectations in the context of human interaction.

If you build a certain type of behavior towards a certain type of actor, your expectation will tend to be reinforced every time you interact with that person. That’s how friendship is created.

If you “educate” people around you to be your friends (to listen to you, to support you, etc) then you will most likely expect from them to behave like this constantly. And you will continue to interact with them if they have the same behavior – that would be the “reward”, so the perceived value increases. If they don’t, you will start avoiding interactions with them – this is the “punishment” part, so the perceived value of the interaction decreases.

Context, Expectations and Perceived Value

Whatever we deem as valuable is modulated constantly by context and expectations.

In different contexts, identical actions can create different outcomes (a suitcase filled with 1 million dollars will be useless on a desert island).

And expectations will modulate the way you perceive some interactions (if you expect someone to behave friendly and the person does behave friendly towards you, then you evaluate that interaction as having more “value” than a neutral interaction from the same person).

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