Matters of Motivation
ON TELEVISION, I WATCH the Barrett-Jackson auctions of expensive cars. When two bidders want the same car, they drive up the price until one decides enough is enough and drops out.
Why is this car so important to the bidders? In many cases, it’s a well-known car that’s highly valued by car collectors, so it’s treated like an investment with lasting value. Other times, it could be a model that the bidders had admired as teenagers, and said to themselves, “Someday, I’m going to own that car.” Now that they’re financially well off, they have the funds to satisfy that childhood promise.
In other words, the price that a car commands at auction is determined by “what the market will bear.” If we’re in the midst of a financial boom and there’s excess cash floating around, a car might go for 20% more than a year earlier. A new buyer simply wants it, and he or she is feeling flush.
I understand how new items are priced: cost of materials + labor + profit = selling price. But what about a piece of art? The cost of materials could be $10 and a struggling artist might charge just $50 for the work. What happens after the artist dies and an art critic talks him up. Someone else might buy the piece for $500—or far, far more. Nothing has changed, except the opinion of the artwork.
A construction firm builds a house, incurs the cost of building materials and labor, and offers it for sale for $200,000. The buyer lives in that house for 20 years before deciding to sell. At the time of the sale, there’s a housing shortage, so several bidders compete. The house sells for $600,000. Every potential buyer has an idea of the home’s worth. There’s no logical price. Instead, the selling price is whatever the most motivated buyer will pay.
We all have our price thresholds. We’ll pay a higher price for the things we consider most important. If enough people share our desire to have that same thing, supply and demand come into play. The lower the supply, the higher the price.
If we’re swayed by the crowd and want what everyone else is buying, we’ll likely pay a high price. The Cabbage Patch Kids were appealing homely dolls, brilliantly marketed with birth certificates and adoption papers. In the mid-1980s, every little girl in America wanted a Cabbage Patch doll. That demand, coupled with supply problems, triggered a buying frenzy among parents.
Christmas is a time when many such “must haves” occur. For parents who didn’t want their daughter to be left out, while all her peers got a Cabbage Patch Kid, this was more than a doll. It was a token of their love—and a symbol of their family’s social status.
The price of something is whatever the market will bear, which means the price is subjective. Deciding on our life’s priorities will help steer us toward the things with the greatest value for us. Otherwise, “A fool and his money are soon parted.”
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