Objects, Transactions and Value

This is a topic that I’ve been mulling over in my head for a little while now, but hang in there with me as I stumble through it, because the conclusions aren’t fully formed.

I’ve noticed that often the concept of the value of something is linked to its price. If someone is willing to pay $50 for an object, then it is considered that they value it as worth $50. If we add up all purchases across a country, it is equal to that country’s GDP, a measure of the value created by that country in that year.

However, the aspect of valuing things doesn’t sit well with me. When I buy something, I don’t feel that the more I pay, the more value I’m getting. In fact, the reverse is generally true, and I imagine most people feel the same. Also, I think different people may place different values on an object, even if they pay exactly the same price for it. It seems that price doesn’t explain value, at least not completely.

Another explanation that has occurred to me is that value is not tied to an object but to a transaction. Clearly a transaction (between a willing buyer and seller at arms-length, etc.) will go ahead only if it generates value for both parties. Otherwise there’s clearly no point. And there are obvious cases when a transaction won’t go ahead: when the price is too much for the buyer, or if the price is not enough for the seller. So, this gives us a framework to identify how much value is being created.

Value of a transactionExcuse my poor excuse for an illustration. Hopefully you can see that ‘A’ is the difference between the price of a transaction and the most the buyer would’ve spent, and ‘B’ is the difference between the price and the least the buyer would’ve accepted. So, in this interpretation, the value of the transaction to the buyer is A, then value of the transaction to the seller is B, and the overall value created by the transaction is A + B.

Out of A and B, it is probably B that is the best understood. In some way it corresponds to the seller’s profit, or perhaps risk-adjusted profit. But not always, since the seller may be willing to make a loss in order to recover some money for their stock. So, in this version of value, based on the fact that a transaction will occur only if both parties see some value in it, a technical loss (sale price less than nominal cost) must still be value positive.

The value A is not easily described since most people don’t explicitly calculate the most they would be willing to pay for their milk, eggs, petrol etc. and are even less likely to tell you about it. However, one exception is in auctions. (Hopefully) most potential buyers at an auction have figured out the most they would be willing to pay. Although, their upper limit may be more influenced by the amount of money at their disposal than by the benefit they will gain through possessing the item. (It may turn out to be impossible to accurately estimate A in most situations.)

As mentioned before, the overall value created from each transaction is A+B, which is also the difference between the most the buyer would pay and the least the seller would take. This number is independent of the price chosen for the transaction, and is clearly “better” the more the expectations of the buyer and seller diverge.

It would be interesting to see what figure we’d get if we added up the A+B numbers for all the transactions that occurred in a country for a year, and compared it to the GDP. I think it would provide a more accurate representation of the economic value created.

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Snap Judgements

At one of the airports during my recent trip, I had to use up some loose change. It’s one of those strange situations – the currency in your hand has value, but as soon as you step onto the plane it’s worthless. Nowhere outside the country will change coins for you, and if it’s a small amount in notes the currency exchange fees will probably eat up all the value. So, one strategy is to turn soon-to-be-worthless currency into something that will still have value even after the plane starts taxiing.

I ended up buying a book, of course.

I had been eyeing off a Malcolm Gladwell book – the one before Outliers, which I’ve already read. I ended up converting my useless Hong Kong dollars (or whatever they were, I forget which airport it was) into something with persistent value. Which was lucky, as I didn’t get around to reading it until about a month later.

Blink: The Power of Thinking Without Thinking

People make snap judgements, but some are better than others

The basic idea of this book is obvious to anyone: that people make snap judgements. However, Gladwell tries to find those times when the snap judgements are interesting, because they are occurring subconsciously, or they are uncannily correct, or they are disappointingly wrong. He describes those times to us with his usual style of clear writing interspersed with interesting anecdotes and off-beat research.

Unfortunately, I couldn’t take away from the book much in the way of practical lessons. It seems that he was trying to write an up-beat book, to show the potential of snap judgements, but I felt a number of the negative cases tended to counter that message. Although someone can be trained to overcome the bias in subconscious judgements, it is not enough to be aware of the subconscious judgement. Also, it turns out that even experts in their field are not always able to say when a snap judgement is going to lead you astray.

However, I still found it fascinating. In particular, I loved the parts about the police, and also the story about the cataloguing of every possible facial expression.

My rating: 3.0 stars
***

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A rort by any other name

Collection of modern safety razors: Gillette F...
Image via Wikipedia

I seem to have lost my collection of shaving instruments in the recent move. I’m not sure where they went. Perhaps wherever all the biros, sunglasses and good TV shows have all disappeared off to.

When it came to replacing my razors I was amazed at the prices. There’s something known as the “razor and blades” strategy and I think there’s a lot of evidence that it needs a new name.

The basic idea is that the razor is sold cheap, i.e. at a loss, but the single loss is more than made up for by the series of blade purchases over the life of the razor. Of course, blades are designed to work with only one type of razor, so if you switched, you’d need to buy a new razor.

The concept is well known in business, and a number of other industries have apparently copied the strategy pioneered by the razor. For example, there was Polaroid cameras and their film cartridges, games consoles and their games cartridges (now discs) and Printers with their ink cartridges.

However, what amazed me about the recent prices was that the price of the razor was massive compared to the price of the blades. That’s not how it’s meant to work in the razor and blades model.

According to figures gleaned this very evening from Coles Online, razors and blades don’t appear to be following the razor and blades strategy…

Razors

  • Schick Quattro Freestyle Kit – $16.34
  • Schick Quattro Razor Kit Titanium – $14.16
  • Gillette Fusion Razor Kit – $13.72
  • Gillette Fusion Phenom Razor – $13.72
  • Gillette Mach 3 Razor Kit – $13.07
  • Schick Quattro Razor Kit – $13.07
  • Gillette Sensor Excel Razor Kit – $7.95
  • Schick Xtreme 3 Razor Kit – $7.62
These all typically include 2 blades also. Median price = $13.40

Blades

  • Gillette Fusion Razor Catridges 6 pack – $32.37 ($5.40 ea)
  • Schick Quattro Razor Catridges Titanium 4 pack – $17.10 ($4.28 ea)
  • Gillette Mach 3 Razor Cartridges 8 pack – $26.65 ($3.33 ea)
  • Schick Quattro Razor Catridges 8 pack – $25.06 ($3.13 ea)
  • Schick Xtreme 3 Razor Cartridges 4 pack – $11.43 ($2.86 ea)
  • Gilette Sensor Excel Razor Blade Cartridges 10 pack – $27.46 ($2.75 ea)
  • Schick Ultra Plus Razor Cartridges 5 pack – $8.70 ($1.74 ea)
Median price = $3.13

Disposables

  • Schick Quattro Razor Disposable with Aloe & Vitamin E 3 pack – $9.80 ($3.27 ea)
  • Gillette Mach 3 Disposable Sensitive 5 pack – $16.01 ($3.20 ea)
  • Gillette Sensor 3 Disposable Razor 8 pack – $11.99 ($1.50 ea)
  • Schick Xtreme 3 Razor Disposable Sensitive with Aloe 8 pack – $11.98 ($1.50 ea)
  • Gillette Blue II Plus Sensitive Pivot Head Disposable Razors 16 pack – $14.16 ($0.89 ea)
  • Schick Extra II Razor Disposable Sensitive with Vitamin E 18 pack – $11.98 ($0.67 ea)

Note that the cost of a disposable (razor + blade) is less than the corresponding razor or blade. Even if you accept that the quality of the disposable will be lower than the ordinary razor, it’s hard to believe that the quality of, say, the Gillette Mach 3 Razor Kit ($13.07 with two blades) is four times the quality of the Gillette Mach 3 Disposable ($3.20 with one blade).

Although I know nothing about it, I would guess that Gillette and Schick are making out like bandits selling the razors. As a comparison, Catch of the Day recently sold a pedestal fan for $13.95, and selling something out of plastic with fewer materials, no moving parts, and no electronics for a similar price cannot be making a loss.

So, if the razor and blades strategy is no longer following the razor and blades strategy, what should we be calling it?

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Choc-Mint Biscuit Recipe

We took some time off, over the Cup Day long weekend, and I took some of that time to do some baking. The most recent Donna Hay magazine (issue 47) has many seductive pages of biscuit recipes, and I succumbed to this one that makes biscuits that taste like a cross between a choc-fudge brownie and an after dinner mint. Donna Hay calls them Chocolate Peppermint Crackles, but it would be simpler to just call them Choc-Mint Biscuits.

Ingredients

1/2 cup (125mL) hard peppermint lollies
200g dark chocolate
80g butter
1 1/2 cups (375mL) brown sugar
2 eggs
1 teaspoon vanilla extract
1 1/4 cups (310mL) plain flour
1/2 cup (125mL) cocoa
2 teaspoons baking power
1/3 cup (80mL) milk

Method

Get the butter out and allow it to soften.

Start by turning the hard peppermint lollies (I used the supermarket’s home-brand peppermint) into a power that the biscuits will be coated with. Put the lollies into a food processor or spice/coffee-grinder and process until they become a fine powder. Set it aside.

Break up the dark chocolate into small pieces for melting. You can either melt it the traditional way (in a heatproof bowl sitting above a simmering saucepan of water) or the fast way (a minute or so in the microwave). Either way is fine as the chocolate will be going into the biscuit mix, and it doesn’t matter if the chocolate loses its shine. Once the chocolate is mostly melted, stir until it is fully melted. Then set it aside.

Now we can start on the biscuit mix.

If the butter isn’t soft, give it a little zap in the microwave. Place the softened butter and brown sugar into a mixing bowl, and beat with an electric mixer for 2-3 minutes.

Add both eggs, beating well after adding each. Add in the vanilla. Then beat on high for another 2-3 minutes until the mix is pale and creamy.

Add the melted chocolate into the mix, and beat well.

Sift the flour, cocoa and baking powder into the mix, stir in the milk, and then beat until smooth.

Cover the mixing bowl with cling wrap and put into the fridge for 30-60 minutes, until the mix is very firm.

Preheat the oven to 180 degrees Celsius (355 degrees Fahrenheit).

Spread some of the peppermint powder onto a plate.

Take the mix out of the fridge. Scoop out heaped teaspoons of the mix, roll them into balls, and roll the balls in the peppermint powder until thoroughly coated.

Lay the balls out, well-spaced, on baking trays lined with non-stick baking paper. Bake for 12-14 minutes. The balls should spread out and the white coating should crack.

Cool on the trays. Makes between 40-50 biscuits.

Like a chocolate brownie, they are probably better the day after baking.

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Comic but not funny


When I was a boy, I had my hair cut at a (somewhat sleazy I can now say) Italian barbers called Mario’s. It was in a small suburban shopping centre named Crossways, after the fact it was placed on a major intersection. Despite this, it never managed to attract a great deal of foot traffic. But somehow, its traders struggled on, and Mario’s seemed to get by on the number of (always) attractive (always) ¬†female (daughters? cousins? nieces?) staff that Mario had around to hand him scissors and clippers.

To keep the younger clientele amused while waiting for Mario, at the end of the long, leather bench seat that ran the length of the barbershop, there was a stack of various comic publications. There was Archie and Richie Rich and others of that ilk, but it was The Phantom that I would always dig through the stack for. A costumed super-hero dating from the earliest days of the comics scene, he would fight off smugglers and slave traders through smarts and physical prowess.

That’s probably how I got “into” comics.

I’m not the biggest comic fan I know, nor am I a regular reader of comics (if you don’t count web comics). But I do own several graphic novels and books of comics, have Comical installed on my PC, and I now have my own stack of The Phantom.

So, when I came across a recommendation for a Pulitzer Prize-winning book on the early days of comics, it then didn’t take too much convincing from the sales lady to buy it. “It’s epic”, she said.

The Amazing Adventures of Kavalier and Clay

A literary treatment of escapism

Michael Chabon’s book takes the reader through the early years of the American comic book industry, set in 1940s New York. It is a thoroughly researched tale, that feels completely plausible, and it is difficult to know where the facts stop and the fiction begins.

The two protagonists of the title – Joe Kavalier and Sam Clay – are likable and engaging, and it is easy to get caught up in their enthusiasm. However, it’s not clear that Chabon likes them very much at all, as it is a rollercoaster of a story, and he doesn’t let them stay happy for long.

The quirky style of the writing made me feel as if I should be getting ready to laugh out loud, but the strife and despair of the situations put a damper on the high points. As a result, I couldn’t sit and read this book for very long at a stretch, and had to put it down and come back when I was ready for yet more torment to occur to Sam and Joe.

The themes of the book revolve around ideas of escapism. There is plenty of fodder for this in the context of a couple of Jewish immigrants in New York during World War II, however the inclusion of comic books into this allows additional meanings. It is cleverly done and the book feels “worthy”, but the level of depressingness was a little too much for me.

My rating: 3.0 stars
***

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