A dollar is a dollar, right? While most conventional economic theories view money as an objective store of value, Mohammad Akbarpour says this misses a subtle but important fact: different people value money differently.
Many economists assume that the price someone is willing to pay for a good or service is equivalent to the utility they get from it. But Akbarpour, an associate professor of economics at Stanford Graduate School of Business, isn’t convinced. “Different people have different marginal value for money,” he says. “If someone is willing to pay $1,000 for a Taylor Swift concert, they do not necessarily get more value [than] someone willing to pay $500. If you're willing to pay more for something, that does not mean that the social welfare is maximized for giving the good to you. It could be that you're rich.”
As Akbarpour explores on this episode of If/Then: Business, Leadership, Society, money doesn’t have to be the sole decider of how scarce resources are allocated. By considering money’s subjectivity, we can design more equitable markets that maximize value and welfare for more people.
Key Takeaways:
- People value money differently: People have different subjective valuations of money based on their own circumstances and financial well-being. $100 means something much different to the CEO of a large, successful corporation than it does to a family on the brink of eviction.
- Market distortions can be warranted: For some goods and services, price controls or subsidies can be more efficient than a free market at allocating resources and benefiting those with less wealth.
- Real-world application: From ridesharing to concert tickets, Akbarpour shares how theoretical economics can be applied to address inequality and improve society.
More Resources:
Mohammad Akbarpour
Voices profile, Mohammad Akbarpour, "In some ways, all of academia hinges on this receptiveness to having your mind changed."
Akbarpour's research in Stanford GSB Insights:
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If/Then