Attributed Value: How much is stuff really worth?

Today the term “attributed value” occurred to me as a way to modify the concept of value in the light of subjective opinion.

How much is something really worth? The traditional common sense answer is that something is worth whatever someone else will pay for it.

In other words, the value attributed by the best available buyer — the attributed value.

Conventional economics probably already has a term for this concept, but I thought I would pin it down while it’s on my mind.

During my career, I have had two businesses for sale. One I sold successfully. The other I was not able to sell at all. From my point of view, both businesses had value, but the one I was not able to sell had no attributed value.

At the time, I consulted a business broker who tried listing the business for me for awhile. We also discussed pricing strategies. One rule of thumb he mentioned is that some people price a business based on two years’ worth of profits. But what it really comes down to in the end, he told me, is the market reality: “This business is worth whatever somebody is willing to pay you for it.”

Wikipedia has an article related to this topic: “Subjective theory of value.”

This idea of attributed value has relevance to Bubbleconomics in that economic bubbles appear to be partly sustained by attributed values that are unnaturally high and thus unsustainable.

The concept of attributed value also has relevance to the question of the Big Bubble. Wikipedia’s article on “Market capitalization” says,

The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007 and rose as high as US$57.5 trillion in May 2008 before dropping below US$50 trillion in August 2008 and slightly above US$40 trillion in September 2008.

Yet did the real value of all the stuff represented by those market capitalization figures actually change that much over those time periods? Or did the Big Bubble just deflate because of falling attributed value?

AB — 20 March 2009

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