Economic Value of an Opinion

I just Google searched the title of this post with parentheses and came up with zero results. So, I’ll form my own opinion. You can value it.

Some might say that an opinion is worth whatever someone else might pay for it. I disagree. That is merely the price of the opinion. Value differs from price. And, valuations differ between individuals.

If I estimate the value of Mikel’s opinion at $100, and he values it at 1 cent, he is wise to take my $100 for the value of him withholding it is just 1 cent. But, I am not exactly shrewd am I? It would be far better for me to pay $50 for his opinion, and get a 50% discount on it’s value to me. Still better if I can pay $10 for a thing worth $100 to me. He on the other hand has done quite well by selling his opinion to me for a steep premium to retention of his opinion (worth just 1 cent if kept to himself.) But alas, this is the mechanics of trade, not the reasoning that derived the economic value.

I prefer establishing value based upon my estimate of the future –discounted back to the present. If I could increase the probability of controlling a thing in the future, I would pay something for that improved assurance today. Thus, the assurance has value because it changes the probabilities. And, therein lies the value of an opinion. A well formed opinion improves the probabilities of obtaining a desired outcome.

The economic value of an opinion is rooted in the probability that it changes the future in your favor. Of course the individual’s own action is paramount to extracting the value embedded in the opinion, but nonetheless, the opinion does contribute. Without any opinion, how does one conduct any action? There is belief rooted in your action.

Thomas Edison said, “genius is 1% inspiration and 99% perspiration.” And, while I agree with his hyperbole, I cannot depend upon his mathematics. But to setup my next point, allow me to walk through my own hyperbole: First, let’s assume Edison is precisely right and the belief is worth 1% of the outcome. Thereby, if a combination of opinion and action result in $1M of present value, and using Edison’s 1% share, the opinion was worth $10,000… hindsight being 20/20.

But, Edison’s opinion is not exactly rooted in logic. If the idea was never formed, the $1M value could never be gathered. Or could it? This is where some comparisons can be helpful. What are the alternatives? Is the idea unique? Is the timing good? These are opinions that effect the ultimate realization of value. How do you organize your perspiration?

I believe an opinion is a form of intellectual property. It’s intangible. You cannot touch it. But, you can own it. And, intellectual property is best valued by its ability to generate extra returns from the same tangible assets. The logo on the side of a gallon of milk transmits an idea to the buyer. The contents within do not have to vary for there to be a different value… both in terms of price, sure… but also in terms of joy derived.

A hammer in a carpenter’s hand is way more valuable than a hammer in my hand. The price of the hammer is the same for both of us, but the value of his construction is far superior to mine. This is because he forms opinions time and again throughout his perspiration that has a higher probability of success than the same hammer in my hand, for the same amount of time. He gets more out of it than I. And, to be clear, if you ever want a house built, don’t hand the hammer to me and tell me I cannot trade it. That would be a stupid opinion on your part.

If the gallon of milk or the house that is built in this lifetime were compared to their alternatives (the absence or restriction of good judgement); then the economic value becomes very easy to calculation in hindsight. The house never gets built, or is dangerous (of negative value.) And the smiles on the children’s face after a pleased mother feeds them is priceless (and positive value.) The value differences of the judgement is extreme. It’s far, far more than 1%.

The real challenge is to apply more value to better formed opinions. And that requires judgement on your part. What are the conditions that make this likely? Can I trust it?

In this manner, the claim of probabilities of the future are of vastly differing value. Accuracy is one part (will the house be completed in my lifetime?) And directional is another portion of the opinion (will mom be happy?) There is quantity and quality both.

It’s our job to act according to sound judgement. And that allows for some error. Be it errors in judgement or simply bad outcomes according to good judgement. I much prefer the later, but cannot assure it either.

Ben Franklin’s opinion when establishing the union.
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