Imagine being in a game show, and you can choose between two prizes: a diamond or a water bottle! It’s an easy choice. Diamonds are very important. Now imagine being given the same choice again, this time alone, you are not at a game show, but waterless in the desert after many days. Do you choose differently? Why? Wasn’t a diamond worth a fortune?
This is a treasure trove, well illustrated by economist Adam Smith. And what it tells us is that interpreting a price is not as simple as it seems.
In this game show, you think about the exchange rate for each item, which you can get for another time, but suddenly, as happened in the desert, which is very much needed by their value, how they contribute to the current situation. And since we only need to choose one of your options, we must also consider its options, or what we lose by losing another option. Other than that, it doesn’t matter how much you earn by selling diamonds if you didn’t go out in the desert.
Modern economists hope to test themselves by trying to reconcile these factors by considering the application, how an object meets a person’s needs or needs.
The materials can be used for anything from a food item to a fun listening to your favorite music, and it varies widely for different people and situations.
Market capital gives us an easy way to track requirements. In short, another important factor for you is determining how much you want to pay.
Now imagine that you are in the wilderness, this time alone, with a new diamond or a bottle of fresh water every five minutes. If you are like most people, you will choose enough water to continue the journey, and then as many diamonds as you can. This is due to another so-called auxiliary component, and it means that when you choose between a diamond and a water, you compare the requirements you get from each other bottle of water with each diamond. And you do this whenever they are offered.
The first bottle of water is more important to you than all the diamonds, but in the end, you have all the water you need. After a while, each bottle becomes heavier. That’s when you start choosing diamonds instead of water.
And it is not just as important as water. When it comes to more things, the more you get, the less useful or fun any extra. This is the law of moderation.
You can happily buy two or three of your favorite foods, but a fourth one makes you nauseous, and a hundredth spoils before you get it. Or you may have to pay to watch the same video over and over until you get tired of it or spend all your money. Either way, you will eventually reach the point where the purchase of a video in-between has not been zero.
Useful is not just about buying things, but about all our thoughts. And the best way to increase it is to avoid short cuts and change the way we spend our time and resources. Once our needs are met, we can decide to invest in the election only if it is practical or fun.
Obviously, how each of us can achieve the best use of real life is another matter. But it helps to remember that the real source of value comes from us, the needs we share, the things we enjoy, and the choices we make.