Value Paradoxes and the Time Value of Value

Abstract

N eoclassical economics equates the concept of value with utility, which is estimated from measures of stated or revealed preferences for various offerings. Value is typically represented by concepts such as willingness to pay (WTP) and gross domestic product (GDP). However, researchers have uncovered a number of paradoxes that demonstrate how preferences and WTP often have surprisingly weak correlations with important outcomes such as subjective well-being (SWB). In simple terms, what people think will make them happy often does not make them happy, suggesting that neoclassical conceptualizations of value may be flawed, or at least shortsighted. We review value paradoxes pertaining to GDP, income, labor, and preferences. We explain the paradoxes through a model that delineates related yet distinct manifestations of value: value potential (a stochastic forecast of future changes in SWB) and value realization (actual changes in SWB). Value realization is shown to have transitory and persistent components. We model the relationship between value potential and value realization with a time value of value equation and describe how the value paradoxes can be explained by flaws in affective forecasting. The time value model uses neoclassical and happiness economic literature to explain how value is transitory, stochastic, and multidimensional.

Editorial—Defining and Measuring Value

“…In this special issue, Karmarkar and Roels (2015) and Sampson (2015) tackle this question with interestingly different propositions; the former demonstrating through a game-theoretic model the general appropriateness of exchange value as a valid measure of value for all intents and purposes, and the latter introducing the notion of the "time value of value" to accommodate the need to estimate anticipated value. These propositions raise other questions.…”

“…Is there an alternative service that can create the same kind of value at an earlier time or compound the value faster than the marriage, or does the value of a marriage accrue strictly because of its duration? Can the passage of time amplify the value of a service so that the net present value of service (see Sampson 2015) should compound instead of discount value?…”

“…In this issue, Sampson (2015) explicates several intriguing paradoxes of economic value that have been empirically validated. More prosaically, one only has to examine the contents of one's attic to realize that a shocking amount of exchange value was spent for items of perceived value that ended up worthless.…”

“…As the economic paradoxes demonstrate, the attic phenomenon is quite common. We are challenged to measure what Sampson (2015) identifies as subjective well-being as an alternative to willingness-to-pay.…”

“…The assumption of a utility function for rational decision making has guided classical economics and operations research for many decades. In this special issue, the paper by Karmarkar and Roels (2015) and the paper by Sampson (2015) offer a tantalizing point, counterpoint on this assumption.…”