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Perhaps those who "confuse" these two terms do so because they've taken an economics course and realize that there are no superior definitions of "worth" than "

by tjic 14y ago

Perhaps those who "confuse" these two terms do so because they've taken an economics course and realize that there are no superior definitions of "worth" than "what someone values an item at". http://en.wikipedia.org/wiki/Value_(economics) http://en.wikipedia.org/wiki/Value_(economics)

clarky07 14y ago
Just because one person values something at a number doesn't mean anyone else (or enough other people) do. The price of their shares tell you the "Current Market Value," but they don't tell you what it is worth in the long term. Things are only worth what the next person is willing to pay for them, not what the last person actually paid. People buying the Groupon IPO were mostly going with the "greater fool" theory of investing. A money losing company with lots of accounting issues is not something that generally just goes up and up in value.
- runako 14y ago
  >> they don't tell you what it is worth in the long term This reminds me of the Keynes quote: "The long run is a misleading guide to current affairs. In the long run we are all dead." More on topic, the long run as an abstraction is limited in its utility for investors. This mostly because investors (like gamblers at a roulette wheel) have to place their bets while the wheel is spinning. Without taking a position on GRPN, I'd say that the "long run" verdict is hardly in at this point.
aero142 14y ago
That is a very practical definition for economic models but that doesn't make it complete. Your link says value within a market, and a single offer for a company by Google does not automatically qualify as a market and therefor determine value. If it did, I could pay you 1 billion dollars for a rock and it would be "worth" 1 billion dollars. I prefer to think of it as, given imperfect information and an inability to predict the future, market value trends towards true value, where true value is a fuzzy subjective set of ideals held by individuals and society.
scarmig 14y ago
Taking a single economics course is a sure way to pollute your thinking about what value is. The idea of "worth" or "value" precedes economics as a discipline. Vulgarized economics might offer really weird and ideological versions of them, but it can't demand that everyone stop using them as normal people do. Anyone can think of instances where someone at their company performs better than someone else but is not well-compensated, relatively-speaking. But no one seriously thinks that someone is inherently more valuable just because they're paid more. If you think about it, anytime you buy a stock or engage in a market transaction you're rejecting the idea that the price of something is its value. If you exchange money for a good, what you're saying is that that good has more value to you than the price you're paying. The person you're bargaining with thinks the converse. Or if you're purchasing an equity, what you're effectively saying is that you have some non-public knowledge that that equity has more value than what the market price suggests (if you buy equities on a different basis, you should probably stop and move to index funds). In Groupon's case, its econo-speak "value" came about because everyone assumed that they could gamble and win on the theory that there's someone who's making the same assumption that they could gamble and win on the same theory as them but who is slightly less savvy. Just because a bunch of people are collectively changing their minds about how many idiots are out there who are slightly less savvy than them doesn't change the actual value Groupon ever had.
- martinpannier 14y ago
  The micro-level counter-examples you provide for macro-level mechanisms simply don't work. If you consider your first example at a market level, people that are better compensated are more valuable—because they create more value (the discussion is—of course—not around one's value as a human being). The only reason for imperfection in this regard is market friction—which there is a lot of, in every market. But the market value tends very quickly towards the real value if the market is liquid enough. In a liquid equity market (stock exchanges for example), the price of the stock you buy is its current value. However, you are making a bet on the future value gains of the company. Buying stock for its current value is investing; anything else is speculation.
bunderbunder 14y ago
Alternatively, consider this Wikipedia page: http://en.wikipedia.org/wiki/Theory_of_value_(economics) http://en.wikipedia.org/wiki/Theory_of_value_(economics) As the old saying goes, a little knowledge (e.g., an introductory course) can be a dangerous thing.

by tjic 14y ago

clarky07 14y ago

Just because one person values something at a number doesn't mean anyone else (or enough other people) do. The price of their shares tell you the "Current Market Value," but they don't tell you what it is worth in the long term. Things are only worth what the next person is willing to pay for them, not what the last person actually paid. People buying the Groupon IPO were mostly going with the "greater fool" theory of investing. A money losing company with lots of accounting issues is not something that generally just goes up and up in value.

runako 14y ago
>> they don't tell you what it is worth in the long term This reminds me of the Keynes quote: "The long run is a misleading guide to current affairs. In the long run we are all dead." More on topic, the long run as an abstraction is limited in its utility for investors. This mostly because investors (like gamblers at a roulette wheel) have to place their bets while the wheel is spinning. Without taking a position on GRPN, I'd say that the "long run" verdict is hardly in at this point.

aero142 14y ago

That is a very practical definition for economic models but that doesn't make it complete. Your link says value within a market, and a single offer for a company by Google does not automatically qualify as a market and therefor determine value. If it did, I could pay you 1 billion dollars for a rock and it would be "worth" 1 billion dollars. I prefer to think of it as, given imperfect information and an inability to predict the future, market value trends towards true value, where true value is a fuzzy subjective set of ideals held by individuals and society.

scarmig 14y ago

Taking a single economics course is a sure way to pollute your thinking about what value is. The idea of "worth" or "value" precedes economics as a discipline. Vulgarized economics might offer really weird and ideological versions of them, but it can't demand that everyone stop using them as normal people do. Anyone can think of instances where someone at their company performs better than someone else but is not well-compensated, relatively-speaking. But no one seriously thinks that someone is inherently more valuable just because they're paid more. If you think about it, anytime you buy a stock or engage in a market transaction you're rejecting the idea that the price of something is its value. If you exchange money for a good, what you're saying is that that good has more value to you than the price you're paying. The person you're bargaining with thinks the converse. Or if you're purchasing an equity, what you're effectively saying is that you have some non-public knowledge that that equity has more value than what the market price suggests (if you buy equities on a different basis, you should probably stop and move to index funds). In Groupon's case, its econo-speak "value" came about because everyone assumed that they could gamble and win on the theory that there's someone who's making the same assumption that they could gamble and win on the same theory as them but who is slightly less savvy. Just because a bunch of people are collectively changing their minds about how many idiots are out there who are slightly less savvy than them doesn't change the actual value Groupon ever had.

martinpannier 14y ago
The micro-level counter-examples you provide for macro-level mechanisms simply don't work. If you consider your first example at a market level, people that are better compensated are more valuable—because they create more value (the discussion is—of course—not around one's value as a human being). The only reason for imperfection in this regard is market friction—which there is a lot of, in every market. But the market value tends very quickly towards the real value if the market is liquid enough. In a liquid equity market (stock exchanges for example), the price of the stock you buy is its current value. However, you are making a bet on the future value gains of the company. Buying stock for its current value is investing; anything else is speculation.

bunderbunder 14y ago

Alternatively, consider this Wikipedia page: http://en.wikipedia.org/wiki/Theory_of_value_(economics) http://en.wikipedia.org/wiki/Theory_of_value_(economics) As the old saying goes, a little knowledge (e.g., an introductory course) can be a dangerous thing.