What If Value Is Constructed?

Diogo Gonçalves a Ph.D. candidate in Economic Psychology, Judgment and Decision Making writes:

In one of the most famous passages of Mark Twain’s novel The Adventures of Tom Sawyer, Tom is made to paint the fence as punishment for playing hooky from school on Friday and dirtying his clothes in a fight. At first, Tom is disheartened by having to forfeit his day off. However, by applying himself to the paintbrush with gusto, he soon cleverly persuades his friends to trade small treasures with him for the privilege of doing his work. He does that by making them believe that painting his aunt’s fence is not a punishment but rather a pleasure and a priviledge they should be willing to pay for. Accordingly to Ariely et al. (2006, p.1), and in Twain’s words, Tom “had discovered a great law of human action, without knowing it – namely, that in order to make a man or a boy covet a thing, it is only necessary to make that thing difficult to attain.

Gonçalves goes on to explain some of the economic implications:

The implications of these findings for economic policies are substantial on two levels. The first level is related to how the `general equilibrium´ of an economy comes into existence. According with orthodox economics, market and production prices achieve equilibrium through the interaction of exogenous consumer preferences with technologies and initial capital. This analysis becomes very unlikely if we consider that preferences are themselves endogenous to the economy, being influenced by the equilibrium states they presume to create. This way, individual preferences are no longer seen as the determinants of the economy; they are considered to be determined by the economy itself.

Rory Sutherland has an excellent talk on this.

(H/T @rorysutherland)