Perhaps one of my earliest introductions to something like a theory of value came in the form of The Tightwad Gazette.1 Besides being a field guide for various frugal homemaking tips (and occasionally veering towards extreme pennypinching) these books also had a few general takeaways that have stuck with me for a surprisingly long time.
The one I’ve been thinking about is the “wow theory” as a theory of value. While it wouldn’t impress any academic economists, it was a pretty good introduction for me as a kid to trying to assess the long-term consequences of decisions, and maybe doing a bit of return-on-investment calculation. I unfortunately don’t have a copy of the Gazette handy, so this is mostly from memory.
Basically, Dacyczyn introduces a conversion between dollars and “wows”. The wow can be pinned down to the real world if necessary—let’s say one wow equals the excitement you get from an ice cream cone—but the important bit of the wow is its ability to be compared.
Now we have all we need to make smart decisions about entertainment purchases. Let’s say an ice cream cone costs $1 and a trip to the local amusement park costs $50. Is it really fifty times more fun to ride rollercoasters for a day than to purchase fifty separate ice cream cones? (Unfortunately, I don’t recall wow theory factoring in hidden costs like the detriments to your health from eating fifty ice cream cones).
Wow theory also dealt with supply and demand. Having one ice cream cone every six months might be an amazing experience, worth 5 wows due to scarcity. However, if you grab an ice cream every day on the way home from school, each cone might be worth not even half a wow. As your ice cream consumption tends toward infinity, the number of wows per cone tends towards zero, making the marginal value of cones very low in the limit.
There were a few other ideas presented, mostly focusing on psychology. For example, saving up for the amusement park trip might in itself be exciting, providing a small number of anticipatory wows throughout the saving period. Mere ice creams are unlikely to provide the same effect. More memorable experiences, like visiting a cool museum, might be more highly valued than eating yet another bag of chips.
Obviously there are now things more important to me than merely purchasing wows. But for a kid trying to decide how to spend a limited budget, you could do worse than wow theory.