In the previous two episodes, the first in this new series, we first gathered some money and then went to the market. Let’s now look at a key component of all the transactions that take place there: price. Again, the concept of price has a lot more than what it seems at the surface.
(For a professional treatment of the psychological aspects of this and related topics, I highly recommend you check out an article by psychology expert Matt Grawitch, link at the bottom.)
We’re now back at the idyllic townsquare market scene of the previous episode. Our fictional friends (who by now you know quite well from my other series) are at the market. Let’s say Brenda and Irene are strolling around both looking to buy a sack of grain each. When Brenda enquires the price with Steve, he quotes 8 copper coins. When Irene does the same at Bryan’s stall, he says 10 copper coins. But why? It’s to be the exact same quantity of grain in both cases, so why the difference in price?
Facing the Face Value
There are a few possibilities here. One is offering better quality than the other. Or, one seller is simply charging more than the other - perhaps Bryan’s got better reputation, there is an element of prestige in buying from him. Or even, for simply no reason.
Now I think we can see that nobody is going to pay the higher price for no reason (at the very least they want a better designed sack for the grain you say?) But prestige / reputation / status factors could command a bit of a premium. Again this might be justified or it might be downright vain (There is this joke from the 1990s. Two ‘New Russians’ -- a name given to those who suddenly became filthy rich, the famous oligarchs -- are sat in a trendy bar in Nevsky Prospekt, sipping champagne. One of them, complimented on his new tie tells the other, yes I bought this in that shop over there for 500 dollars. The other responds, oh no, you’ve been conned, if you went to that shop opposite you could have paid a thousand dollars for the same tie instead.)
Adding It All Up
Such indulgences notwithstanding, the rest of us mortals, in most cases, all other things being equal, would go for the lower price. But who really determines the price? Obviously, given we’re not talking about tipping, it’s not the buyer. But in some sense it’s not the seller either.
Essentially, a viable price depends on factors such as supply and demand, a dynamic we deal with in many of our decision-making processes way beyond just buying goods at the market. Ultimately the ‘right price’ is what the buyer is willing to pay, and what the seller hopes exceeds the cost of making the item -- given the sum total of the circumstances at play. But there’s more to it.
Taking a bigger picture here, a price is fundamentally a signal that’s filtered through all these ‘circumstances’, a whole bunch of factors, vagaries and vicissitudes: crop yield that year, ie, supply, a new fad leading to a change in dietary habits, such as a switch from grain to dairy - so low demand for grain. Maybe cheaper grain imports from abroad, and so on, all of what we may collectively term the economy (From Ancient Greek ‘oîkos’ “house” and ‘-nomia’ “rules, management”)
Uncrossing the Signals
As we saw about the emergent nature of the market previously, prices in a free market also have a life of their own, they also essentially ‘emerge’ from the aggregate of these circumstances - the market realities of the economy. One may say it’s not perfect, plus a myriad of other questions about whether it is indeed the “right price for me” etc. Each of these complicated questions merit more in-depth treatment in their own right.
But in principle, the concept of price is just that - a signaling mechanism, it filters through the unpredictable, unplannable messiness of our reality into something quantifiable, at the local level, something tangible, each little price tag contributing to the accumulation into the aggregate of the overall economy, and back the other way - again I’ll come back to the advanced details in due course.
But let’s consider this. The biological equivalent of price is pain.
Pain is not ‘evil’ per se, pain is an essential component of evolution, it’s a way for your body to tell you that something is wrong, that something needs attention. It too is a signal! Likewise, price is a signal that gives us information about our reality.
Suppressing pain only means we numb ourselves to what biological reality it’s conveying, is suppressing the signal of prices any different?
Article written by Ash Stuart
Images, voice narration and some footnotes generated by AI
Nothing in this presentation constitutes as advice - financial, investment or other
Further Reading & Reference
* The Psychology of Money in Everyday Decisions, Matt Grawitch
