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What is Willingness To Pay?
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- Опубликовано: 3 авг 2022
- An explanation of the concept in philosophy of economics known as Willingness to Pay and the philosophical implications of it.
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Mmmmm.... Donut!
Some comments:
Ability to pay is not necessarily limited by the amount of money in the wallet as the person could borrow from the future to pay for the water.
There is danger in overvaluing benefit for the less affluent, because it would create perverse incentives.
An interesting phenomenon is that willingness to pay does not equal willingness to accept; although theory tells us that these should be equal. However, in life we often see examples of this discrepancy.
Only had a brief chance to look at the book. It is nice and thick. It seems to be very well written. Hopefully I will be able to dive into it this weekend.
Good catch, it is an oversimplification to say that you are limited by the money in your pocket, as assumedly you could tell the donut shop that you just need to run home to grab more cash and they could give you a very short term loan.
Agreed that there are all sorts of other issues with willingness to pay like it not matching willingness to accept etc. Certainly challenges for the accuracy of economic models.
Thanks so much for buying the book! I hope you enjoy. :)
We must use willingness to pay because it's the only way to take into account the uncountable factors that led to the final cost of the commodity. This allows potential producers of the commodity to selfishly determine the incentive they have to produce said commodity for their own benefit, thereby increasing total supply of the commodity. Over time, competition in the market by self-interested actors brings down the cost of producing this commodity, increasing access for the poor. See: Cell phones.
If a potential producer of the commodity couldn't get an accurate, absolute reflection of his potential market's willingness to pay, he could not balance his incentive against the cost to him for producing the commodity, and would be much less likely to enter that market as a producer, thereby reducing the total available amount of that product, resulting in the last-donut-in-the-shop scenario.
That is a good argument for using willingness to pay for the private sector. My concern in the book is when it is used by the public sector to value benefit to society, not as a tool for a company to set prices. It is useful for the private sector, but inaccurate and unjust for the public sector.
Did you make the "WTP" on the thumbnail as a subtle reference to Teyana Taylor's 2018 hit single WTP (work this poosay)? Very clever!
The first thought that strikes me upon learning of this just now is that a simple possible way to remedy the problem with willingness to pay being constrained by ability to pay is to calculate benefit not in absolute currency but in marginal utility of currency. To a person who has only $1, $1 is worth much more than $100 is worth to a millionaire, because each additional dollar is worth less in actual utility than the last. So the millionaire may be willing to pay $100 because he easily can and just doesn't care about a measly $100, but that very fact that he doesn't care means that he's actually spending less in terms of his own utility than the person who is spending their very last precious dollar.
Obviously, but you would need to know the person's worth for that. Any analysis using market rates works in absolute currency. The most dire need of the destitute is worth less than the passing fancy of the rich. It's more honest to admit we value people by the amount of value they can provide to us. Your use of hardware made by exploitative labor to write this comment proves this point.
@@CjqNslXUcM When you say "know the person's worth" do you mean their net worth in absolute currency, i.e. how much money they have, their ability to pay? Or do you mean the value of them as a person, as measured some (unspecified) way? Distinguishing between those is the crux of all this, as we're discussing the measurement of a person's worth as in how much to spend on helping them in terms of their willingness to pay, which in turn takes "their worth" as in their ability to pay as a factor, so if we want to adjust for that factor we just divide by it: say a person is worth helping to the extent that they benefit from that help as measured by *the ratio of* how much they would be willing to pay *over how much they are able to pay* . In that case, two parties who would both give everything they have for something are considered to benefit the same from it, even if how much they have to give differs greatly. And likewise if they'd be willing to give any X% of what they have...
@@Pfhorrest I was talking about absolute net worth which would allow us to determine the relative willingness to pay as a ratio. This critique was leveled at the practicality of your solution.
The holistic critique is that this ratio assumes that we value human life equally, which is not the case. The underlying premise is that our actions reveal our beliefs as opposed to our statements. If were to value human life equally, we would direct all of our wealth towards the poorest on earth as to achieve the highest aggregate ratio.
Instead, we direct wealth towards the most useful to us. In fact, we choose labor with the lowest practical net worth to allow for the lowest absolute wages. The purchase of the electronic device you are using to comment reveals that you believe in a distribution based on absolute willingness to pay.
Valuing willingness to pay relatively falls apart on human nature and economics.
@@CjqNslXUcM " we would direct all of our wealth towards the poorest on earth as to achieve the highest aggregate ratio"
using your modelling, you would reward someone for 100 units of profit to produce 1 widget
i would compensate someone skilled the same 100 units (money) to produce 100 widgets
your modelling assigns a value 1/100 times mine, "If we're to value human life equally"
mine results in 99 additional people owing widgets, or electronic units.
"highest aggregate ratio" equates to the poorest production, this is human nature and economics.
if you fail to understand this basic principal of productivity, then you may be misusing your electronics unit.
this is the supply side you are attempting to assign a value to before it has been measured.
equality of opportunity, not equality of outcome.
as the video states: " this points to a substantial issue with using willingness to pay with value benefits"
your perception of "the poor" receiving higher value benefits is intrinsically flawed.
"exploitive" is such a buzz word among certain groups. derogatory generalization assumption.
@@mkuehn5450 You have thoroughly misunderstood my argument.
3:44 _"it seems to make intuitive sense that you get some benefit for getting something for less than you paid for it"_
I don't know if it's intuitive or not, because I don't even understand the sentence. I think maybe there's a mistake ? Shouldn't the correct sentence be : "it seems to make intuitive sense that you get some benefit for getting something for less than you *were willing to pay* for it" ?
Ah, but you see, he does not care about that, he is a Marxist.
Hi Carneades ! Can you suggest a book on logic which covers the different types propositional, modal etc. Just started the journey.
I did not expect this kind of theme here, I am pleasantly surprised. Thank you
Great! I'm glad you appreciate, and you should look forward to more videos on the philosophy of economics coming soon!
Very good topic. I will wait for more content about this
Awesome! There is a lot more in the works, though it will probably be interspersed with other series we are working on at the same time. Hope you enjoy!
hey carneades! I just got your book and reading it now!
also nice video about conusmer surplus! My professor wrote a paper about other problems about consumer surplus if your interested www.ineteconomics.org/uploads/papers/WP_99-Glick-Consumer-Welfare.pdf
Thanks so much for buying the book! I hope you enjoy. :)
@Carnedes, if I recall correctly from your previous lectures, you are an academic skeptic (in the context of epistemology)- given such radical doubt(s) towards epistemic commitments, I wonder what is your fundamental axiomatic commitment to economics- particularly in the context of game theory/rational choice theory.
As per W2P discourse: pretty sure anyone trained in the theory of action can make better arguments about choices (desire-based or whichever else) than a classically-trained economist or a behavioral economist. Cheers!
I am a Pyrrhonian skeptic, similar but slightly different from an academic skeptic. Though that distinction is tangential to your point.
I am an instrumentalist about economics, just as I am an instrumentalist about other sciences. It seems useful, but I am not convinced that it is true. Governments need to take action so it seems important to give them the best tools possible, even when we are not sure that those tools perfectly accurately represent reality. I have an appendix in the book that talks about contrasting my views as an academic skeptic with my work in economics.
Agreed that there's a whole realm of action theory and the theory of rational choice that would have strong views on many economic concepts that I didn't even touch on. Good point!
Most probably it depends how we define benefit. If one reads some basic book on economy 101, one will learn quickly that what's in that book is not what one had thought those terms meant.
The central challenge I raise in my book is that economics does a poor job of defining benefit, and that there are very easy ways to more accurately measure it.
Will a digital format of the book be offered at some point? I would gladly buy it.
I am working on a digital version, but I am not sure when/if it will be completed, so I have not announced anything officially. I want to make sure that the illustrations and graphics work correctly in the digital format (there are a lot of them) before I put anything out and that is taking some time. A couple of months at the earliest. Thanks for your interest!
7:47 YO! I AM LOVING THAT ILLO! LOVING IT! BAD ASS
Great video!i have a question please reply...do you think our universe is a brute fact or it's necessary?and do you accept contingency argument's 1st stage?i.e. contingent facts can be explained by a Necessary existence?
Good question. I am a skeptic so I don't believe either that the universe is a brute fact or that it is necessary. I don't believe that contingent facts can be explained by necessary existence. I don't believe anything. If you are interested in my thoughts on the cosmological argument (which may be what you are asking about, or it may not) I have a series on it here: ruclips.net/video/lX-2htH5wnM/видео.html
This is very useful in my environmental science program haha
As an economist who does lots of CBAs, the limitations of WTP vales are well known, and critiques like this are a good reminder to use such values with care. One should very seriously consider whether the same bottle of water given to a thirsty yet poor person is even the same good if it is given to the rich person.
I'll be interested to see your book, but I'll be amazed if you can 'fix' CBA :D
No, there are cycles to everything so there are no fixed pricing.
Who first author formulate willingness to pay?
Are you familiar with Yuval Noah Harari? If so what are your thoughts on some of his ideas?
good
This makes me wonder for examples of where this kind of analysis is used in the public sector because I can't come up with any for the life of me.
He is a hocking marxism.
Wouldn't this problem be solved by redefining the willingness to pay to what a person would pay if they had the ability?
An interesting idea. The challenge then is that people are not then forced to make real choices. Someone could say they are willing to pay $2 billion for a new road outside their house and we would need to take them at their word that they would get that much benefit from it. Cost benefit analysis would simply be a competition of who could write the biggest number.
I do think there is a solution that I outline in the book, and we will mention in an upcoming video on the channel. Stay tuned! :)
7:35 it also justifies thievery.
I assure you. I am also unwilling to buy a doughnut at 2$ as well :-)
What is a baby's willingness to pay? What is the concept of pay? Is paying a benefit or a detriment?
So, according to this analysis, the whole of Britain is equal to a single horse, as per Shakespeare's "Richard III"? He was willing to pay a whole kingdom for a horse. All the gold, power and titles didn't compare to a single horse that day.
It's clear that although the state should treat people impartially, all lives are not equally valuable to anyone.
And if this is true, it seems that the tools of economics are not well calibrated for public decision-making
You said that you are an agnostic atheist, but that's not really an academic definition.You are either an atheist, agnostic, or theist, no in between.Do you disagree with modern academia?
I am a Pyrrhonian philosophical skeptic. That means I don't have any beliefs. Modern academia does not have a strict definition of atheist. Here's the Stanford Encyclopedia of Philosophy: "The word “atheism” is polysemous-it has multiple related meanings."
The first definition that Standford cites is "atheism is a psychological state, specifically the state of being an atheist, where an atheist is defined as someone who is not a theist and a theist is defined as someone who believes that God exists (or that there are gods)." Based on that definition all agnostics (that lack belief in God) are atheists. However that is not the only definition. Check out my video on the difference between atheists and agnostics for more (ruclips.net/video/aofOwAHuQbw/видео.html)
What a mistake to subscribe to this channel.
Indeed, this guy is a Marxist salesmen under the guise of philosophy.