Understanding Price, Intrinsic Value, and Emotional Value

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I smiled when I read Tricia’s post about how she created a little garage sale monster when she enlisted her five year old son to help with their garage sale. He basically earmarked 90% of his toys for sale and started assigning them prices that, to Tricia, were too high or too low compared to the intrinsic value. For example, he priced a truck at $30 when it could be purchased brand new for $15 and he priced a huge train set at a mere 99 cents. The beauty of the article, beside the cuteness of a kid pricing his own toys, is that it gives us a very good glimpse at how the human mind operates before and after it recognizes the idea of money.

At five years old, the price that the kid is assigning has more to do with his emotional attachment, the emotional value, to the toy than its intrinsic value, because kids have no concept of that. He likes the truck more than he liked the train set, to say he liked it 30x more would be unfair because he’s likely not thinking in those terms. So, my belief is that with a kid the price is merely a verbalization of the emotional value of the item.

Where this differs with adults is that adults more fully understand the importance of money and so they’re equation is to maximum the price with respect to the intrinsic value, they try to take the emotional value out of it unless they can use it to their advantage. Salesmen do this all the time, if they see that you absolutely love a particular item, they might increase the bottom line price (often with not so transparent methods like financing, they won’t charge you more, they recognize you’re not stupid) just because they know they can get more because of the emotional value, even if the intrinsic value hasn’t changed.

This works everywhere, not just with children. When you get a gift, you want to maximize the emotional value and minimize the price whenever you can. I’m not saying be a cheap bum when buying gifts, but you should spend more time thinking of the perfect gift and less time trying to find an expensive one. Ultimately, it’s the emotional value of something that matters and something we can lose sight of, that’s why there’s plenty we can learn from children.

I’m not a psychologist either, I vaguely remember taking a class once but I love giving my often misguided opinion because its fun. Also, what’s ironic is that the $15 truck was valued more than a 300+ piece train set that likely cost far more… but don’t tell Tricia. 🙂

{ 5 comments, please add your thoughts now! }

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5 Responses to “Understanding Price, Intrinsic Value, and Emotional Value”

  1. dong says:

    It begs the question for some people what the emotional value of money for some people is…. It might be more than the intrinsic value if that’s possible.

  2. plonkee says:

    Well some money has a higher emotional value than others – I reckon it diminishes the more there is around.

    I like the idea of maximising then emotional value whilst minimising the intrinsic value of gifts – although I may not tell my recipients thats what I’ve been trying to do.

  3. Sounds like the five-year-old is in the process of learning a valuable lesson: a thing is worth only what someone is willing to pay for it.

    Now, if some of those grownups who overprice their old stuff at yard sales could only figure it out….

  4. FreeFromDebt says:

    It’s not just children that let emotional attachment influence choices over what they will take or even pay for something.

    I have very intelligent clients who are paying 2,3 or even 5 times the price for things they ‘had to have’ by carring high credit card balances and only making minimum payments. I know that they are smart enough to realize the outrageous costs involved; but they still do it anyway. That’s emotion, not logic.

    In the past ten years the overall debt load on American families has tripled; and consumer debt has doubled. The only reason for the difference in the two figures is that they refi or use equity lines to consolidate so they can afford more. Once the consumer debt is rolled into a mortgage instrument it is no longer classified as consumer debt. But it is still debt and still must be repaid!

    This is obviously a very dangerous trend, but as long as they can afford the monthly payments it will all be OK… Right?

    Thanks for your work to get these issues out. Sadly, the ones who need to ‘read up’ on financial liability matters usually won’t.

  5. Tricia says:

    I’d have to agree with his emotional attachment to the toys. He likes his Tonka trucks, but decided to sell the truck and put a high price on it. Now, his train he has clearly outgrown and he wants a more “grown-up” train set. In his mind, if he sells the train set he’ll have money to get a new one. But he still put a low price on it, probably because he wanted it to sell.

    It really is fascinating to witness his mind in action.

    Oh…while I haven’t added it up, the train set probably cost between $250-300.

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