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Comment by dnautics | Hacker News Reader

> no player can thru individual choices affect prices in the market

That might be Econ 101 with fully continuous utility curves, and realized price equilbria, but anyone who has traded on a market knows that as soon as most bids are fulfilled it causes a dislocation of the price, so in reality the opposite is true: all individual choices affect prices in the market.

There is an old concept that rolls through bernanke, krugman, keynes, marx, smith, and aristotle (you're in very smart company if you make this mistake), that somehow prices represent an equivalence class of values. That's a very mistaken view of the world and also, in a perverse way, considering the progressive bona fides of some of those smart people, reflects an illiberal fetishization of the power of money and numericism.

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It’s knowledge of settlement that causes the “dislocation” of price. Actual settlement has minimal affect.

Price, at equilibrium, is a true representation of value. But other market forces ensure that equilibrium is seldom met. Tax, tariffs, subsidies on the product and its components skew price away from value.

Also, this kind of analysis only works at market level. Individual actors all have different values. It has to be viewed in aggregate. Think anecdote vs data.

> prices represent an equivalence class of values

What do you mean by that?

there is this pervasive assumption in economic theory that if two things have the same price they have the same value in some global sense. To make an obvious example: If you are allergic to peanuts, then the value of a peanut to you is quite extremely different to the value of that same peanut to someone else. This is unaffected by the price of the peanut.

If I'm allergic to peanuts and the price of peanuts is $100/pound, the value of a pound of peanuts to me is still $100... because I can sell them and buy something I'm not allergic to.

There are a lot of assumptions required to have that statement be sensical including a lack of transaction fees (including, just, effort - you're assuming the time it takes for you to arrange the purchase and resale is without value) and extreme price stability. 100$ worth of peanuts isn't worthless to someone with a peanut allergy but it is certainly worth less than it is to someone without since to the person with an allergy the only value of peanuts is as a bartering currency.

True. Value to an economist is an aggregate of all the individual’s values. Your individual value is likely to have not influence on the market value (unless you’re buying a lot at a different price).

not really. If you are planning an arbitrage operation, then their resell price (and thus value to you) must be at least MORE than $100, otherwise you wouldn't buying them and going through the hassle and opportunity loss of the arbitrage.

If you don't bother buying them, then the total value to you is probably less than the value of $100 for you.

It's possible that the value just happens to be equal to the value of $100. That's a vanishingly unlikely coincidence.

I'd argue that the economic sense distinguishes market price and individual value (market value === marginal consumer value), but that much political-economic rhetoric, particularly from free-market fundamentalists, does not.

> there is this pervasive assumption in economic theory that if two things have the same price they have the same value in some global sense.

Um... quite exactly the opposite? Very nearly the most basic assumption of all economic theory is that wealth is created through trade (which includes trading labor for a salary) because each party values the thing they are receiving more than the thing they are giving away.

The quantity in question here is "price", not "value". Prices only exist when buyer and seller agree. You're right that values will be different, but I think you've missed the subject of the previous post.

> because each party values the thing they are receiving more than the thing they are giving away.

We're not disagreeing. I think I could have been imprecise. It seems a lot of arguments made by economists who should know better quietly use models which which effectively ignore the "most basic assumption" or average it out, which is a nonsensical operation.

This is a faulty argument.

Value to an individual is very different to value to a market.

Value in this sense is the aggregate of the individual values to all of the buyers and all of the sellers.

Price and value only match when supply and demand are at equilibrium.

What aggregate do you use? Mean? Median? Mode? Second moment? Wealth-weighted average? Buying-likelihood weighted average?

How do you avoid Simpson's paradoxes?

You make a good point, but obviously different datasets and scenarios require different methods, and the detail of any approach is less important than starting out with valid assumptions.

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