This is part 2 of answering the question: What do people act, choose, and change?

One Takeaway

Value is in the eyes of the beholder. This allows people to trade and cooperate with each other, leaving each other better off.

What is Value?

Value exists only in our minds. Nothing in the world has value unless someone believes it has the potential to bring satisfaction or fulfill a desire. One person might love a piece of art, another may see it as clutter. A meal that one person loves may be disgusting to another. These differences highlight why a standard agreed-upon worth for any good or service is a myth.

An object’s features, no matter how unique, do not make it valuable on their own. Value is always determined by how an individual perceives something’s usefulness in helping them achieve their own goals. Because value is personal, economists call it subjective value. The opposite idea—that value is built into the object itself—is called objective value.

Value is Not Set in Stone

Value can not only be different between different people, but it can also change based on individual circumstances, new knowledge, and even likes or dislikes. A personal story illustrates this well:

While at a crowded pub outside London, I saw a man buy four pints of beer at £3 each. His friend left him to carry all four through the crowded room—a near-impossible task. Realizing he couldn’t manage all four and unwilling to risk leaving one behind, the man with four pints offered me one of the beers for £1. I gladly accepted the trade.

Even though he had just paid £3 for the beer, its value to him changed within moments. The effort and risk of holding onto it were too costly, so he reduced the value of this fourth beer (the beer intended for the friend who abandoned him) and struck a deal with me. This shows how value can shift depending on time and constraints.

What Affects Value?

People value things differently for various reasons:

Preferences: Personal tastes differ. What’s appealing to one may be disgusting to another.
Expectations: People’s ideas about the future influence how they value goods today.
Knowledge: Awareness of a good’s uses or benefits determines its perceived value.
Circumstances: Context and urgency play a huge role, as seen in the pub example.

Imagine there’s a root or plant right now in the Amazon rainforest that has the potential to treat cancer, obesity, HIV, blindness, and deafness simultaneously. If no one knows about it, or how to use it safely, it holds no value. Even with its incredible potential, the absence of knowledge, expectations, and plans to use it makes it worthless.

Value in Trade

People having differences in what they value is one of the main reasons trade exists. When two people choose to buy or sell to each other, it’s because each one values what they’re getting more than what they’re giving up.

Imagine someone trading a sandwich for a soda. The person who wants the sandwich is hungrier than they are thirsty. The person who wants the soda is thirstier than they are hungry. When they trade, each person walks away with something they value more. Nothing new was created, yet both are better off. Boom. As my wife says, “double happiness.”

The more we differ in what we value, the more opportunities and reasons we have to work with one another. What might seem useless to one person can be highly valuable to someone else.

Can We Measure Satisfaction?

Because value is personal, so is satisfaction. One person might get a lot of joy from a simple cup of coffee, while another barely notices the flavor. But here’s the challenge: even if both people could rate their satisfaction on a scale of 1 to 10, there’s no way to know whether one person’s “7” is greater or lesser than the other’s “5.” These numbers don’t map onto anything concrete or comparable.

The same goes for dissatisfaction, or even pain. Someone’s “5” on a pain scale could be a “10” on someone else’s.

Satisfaction lives only in the mind of the person experiencing it. It can’t be measured, compared across people, or meaningfully added up. Because of this, the best we can do is recognize that each person is the best judge of their own satisfaction.

The Bottom Line

Value lives in the mind of each individual. Because we value things differently, we have a pretty good reason to trade and cooperate. But that same difference also means we can’t measure or compare satisfaction across people. The goal of economics isn’t to calculate how happy people are. It’s to understand how they act on what they value and why that matters.

This is Chapter 4 of Economics for Busy People, a book I’m sharing weekly on how economic thinking improves everyday decisions. [Read Chapter 3: We Always Act For A Reason] | Subscribe for weekly insights.

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