full transcript

From the Ted Talk by Akshita Agarwal: The paradox of value

Unscramble the Blue Letters

Imagine you're on a game show, and you can choose between two prizes: a diamond or a bottle of water. It's an easy choice. The dnoimads are clearly more valuable. Now imagine being given the same choice again, only this time, you're not on a game show, but detaredhyd in the desert after wandering for days. Do you choose differently? Why? Aren't diamonds still more valuable? This is the paradox of value, famously described by preiioneng economist Adam Smith. And what it tlles us is that defining value is not as simple as it seems. On the game show, you were thinking about each item's exchange value, what you could obtain for them at a later time, but in an emergency, like the desert scenario, what matters far more is their use value, how helpful they are in your current situation. And because we only get to choose one of the options, we also have to consider its opportunity cost, or what we lose by gnviig up the other ccihoe. After all, it doesn't mttear how much you could get from selling the diamond if you never make it out of the dreset. Most modern emocnoists deal with the paradox of value by attempting to unify these considerations under the concept of utility, how well something satisfies a person's wants or needs. Utility can aplpy to anything from the basic need for food to the pleasure of hearing a frtoivae song, and will naturally vary for different people and circumstances. A market economy provides us with an easy way to tcark utility. Put simply, the utility something has to you is reflected by how much you'd be willing to pay for it. Now, imagine yourself back in the desert, only this time, you get offered a new diamond or a fresh bottle of water every five minutes. If you're like most people, you'll first choose enough water to last the trip, and then as many diamonds as you can carry. This is because of something called marginal utliity, and it means that when you choose between diamonds and wetar, you crmpoae utility onebtiad from every additional bottle of water to every additional diamond. And you do this each time an oeffr is made. The first bottle of water is worth more to you than any amount of diamonds, but eventually, you have all the water you need. After a while, every atioidandl bottle becomes a burden. That's when you begin to choose diamonds over water. And it's not just necessities like water. When it comes to most things, the more of it you acquire, the less useful or eboalnyje every additional bit becomes. This is the law of diminishing marginal utility. You might gladly buy two or three helpings of your favorite food, but the fuotrh would make you nauseated, and the hundredth would spoil before you could even get to it. Or you could pay to see the same movie over and over until you got beord of it or spent all of your money. Either way, you'd eventually reach a point where the marginal utility for buinyg another miove tikect became zero. Utility appiles not just to buying things, but to all our decisions. And the intuitive way to maximize it and avoid diminishing returns is to vary the way we spend our time and resources. After our basic needs are met, we'd theoretically decide to invest in choices only to the point they're useful or enjoyable. Of course, how effectively any of us manage to maximize utility in real life is another matter. But it helps to remember that the ultimate source of value comes from us, the needs we share, the things we ejony, and the chioces we make.

Open Cloze

Imagine you're on a game show, and you can choose between two prizes: a diamond or a bottle of water. It's an easy choice. The ________ are clearly more valuable. Now imagine being given the same choice again, only this time, you're not on a game show, but __________ in the desert after wandering for days. Do you choose differently? Why? Aren't diamonds still more valuable? This is the paradox of value, famously described by __________ economist Adam Smith. And what it _____ us is that defining value is not as simple as it seems. On the game show, you were thinking about each item's exchange value, what you could obtain for them at a later time, but in an emergency, like the desert scenario, what matters far more is their use value, how helpful they are in your current situation. And because we only get to choose one of the options, we also have to consider its opportunity cost, or what we lose by ______ up the other ______. After all, it doesn't ______ how much you could get from selling the diamond if you never make it out of the ______. Most modern __________ deal with the paradox of value by attempting to unify these considerations under the concept of utility, how well something satisfies a person's wants or needs. Utility can _____ to anything from the basic need for food to the pleasure of hearing a ________ song, and will naturally vary for different people and circumstances. A market economy provides us with an easy way to _____ utility. Put simply, the utility something has to you is reflected by how much you'd be willing to pay for it. Now, imagine yourself back in the desert, only this time, you get offered a new diamond or a fresh bottle of water every five minutes. If you're like most people, you'll first choose enough water to last the trip, and then as many diamonds as you can carry. This is because of something called marginal _______, and it means that when you choose between diamonds and _____, you _______ utility ________ from every additional bottle of water to every additional diamond. And you do this each time an _____ is made. The first bottle of water is worth more to you than any amount of diamonds, but eventually, you have all the water you need. After a while, every __________ bottle becomes a burden. That's when you begin to choose diamonds over water. And it's not just necessities like water. When it comes to most things, the more of it you acquire, the less useful or _________ every additional bit becomes. This is the law of diminishing marginal utility. You might gladly buy two or three helpings of your favorite food, but the ______ would make you nauseated, and the hundredth would spoil before you could even get to it. Or you could pay to see the same movie over and over until you got _____ of it or spent all of your money. Either way, you'd eventually reach a point where the marginal utility for ______ another _____ ______ became zero. Utility _______ not just to buying things, but to all our decisions. And the intuitive way to maximize it and avoid diminishing returns is to vary the way we spend our time and resources. After our basic needs are met, we'd theoretically decide to invest in choices only to the point they're useful or enjoyable. Of course, how effectively any of us manage to maximize utility in real life is another matter. But it helps to remember that the ultimate source of value comes from us, the needs we share, the things we _____, and the _______ we make.

Solution

  1. additional
  2. enjoy
  3. compare
  4. diamonds
  5. economists
  6. offer
  7. choice
  8. obtained
  9. fourth
  10. enjoyable
  11. giving
  12. favorite
  13. water
  14. tells
  15. dehydrated
  16. desert
  17. matter
  18. track
  19. apply
  20. pioneering
  21. buying
  22. ticket
  23. utility
  24. applies
  25. choices
  26. bored
  27. movie

Original Text

Imagine you're on a game show, and you can choose between two prizes: a diamond or a bottle of water. It's an easy choice. The diamonds are clearly more valuable. Now imagine being given the same choice again, only this time, you're not on a game show, but dehydrated in the desert after wandering for days. Do you choose differently? Why? Aren't diamonds still more valuable? This is the paradox of value, famously described by pioneering economist Adam Smith. And what it tells us is that defining value is not as simple as it seems. On the game show, you were thinking about each item's exchange value, what you could obtain for them at a later time, but in an emergency, like the desert scenario, what matters far more is their use value, how helpful they are in your current situation. And because we only get to choose one of the options, we also have to consider its opportunity cost, or what we lose by giving up the other choice. After all, it doesn't matter how much you could get from selling the diamond if you never make it out of the desert. Most modern economists deal with the paradox of value by attempting to unify these considerations under the concept of utility, how well something satisfies a person's wants or needs. Utility can apply to anything from the basic need for food to the pleasure of hearing a favorite song, and will naturally vary for different people and circumstances. A market economy provides us with an easy way to track utility. Put simply, the utility something has to you is reflected by how much you'd be willing to pay for it. Now, imagine yourself back in the desert, only this time, you get offered a new diamond or a fresh bottle of water every five minutes. If you're like most people, you'll first choose enough water to last the trip, and then as many diamonds as you can carry. This is because of something called marginal utility, and it means that when you choose between diamonds and water, you compare utility obtained from every additional bottle of water to every additional diamond. And you do this each time an offer is made. The first bottle of water is worth more to you than any amount of diamonds, but eventually, you have all the water you need. After a while, every additional bottle becomes a burden. That's when you begin to choose diamonds over water. And it's not just necessities like water. When it comes to most things, the more of it you acquire, the less useful or enjoyable every additional bit becomes. This is the law of diminishing marginal utility. You might gladly buy two or three helpings of your favorite food, but the fourth would make you nauseated, and the hundredth would spoil before you could even get to it. Or you could pay to see the same movie over and over until you got bored of it or spent all of your money. Either way, you'd eventually reach a point where the marginal utility for buying another movie ticket became zero. Utility applies not just to buying things, but to all our decisions. And the intuitive way to maximize it and avoid diminishing returns is to vary the way we spend our time and resources. After our basic needs are met, we'd theoretically decide to invest in choices only to the point they're useful or enjoyable. Of course, how effectively any of us manage to maximize utility in real life is another matter. But it helps to remember that the ultimate source of value comes from us, the needs we share, the things we enjoy, and the choices we make.

Frequently Occurring Word Combinations

ngrams of length 2

collocation frequency
additional bottle 2
marginal utility 2

Important Words

  1. acquire
  2. adam
  3. additional
  4. amount
  5. applies
  6. apply
  7. attempting
  8. avoid
  9. basic
  10. bit
  11. bored
  12. bottle
  13. burden
  14. buy
  15. buying
  16. called
  17. carry
  18. choice
  19. choices
  20. choose
  21. circumstances
  22. compare
  23. concept
  24. considerations
  25. cost
  26. current
  27. days
  28. deal
  29. decide
  30. decisions
  31. defining
  32. dehydrated
  33. desert
  34. diamond
  35. diamonds
  36. differently
  37. diminishing
  38. easy
  39. economist
  40. economists
  41. economy
  42. effectively
  43. emergency
  44. enjoy
  45. enjoyable
  46. eventually
  47. exchange
  48. famously
  49. favorite
  50. food
  51. fourth
  52. fresh
  53. game
  54. giving
  55. gladly
  56. hearing
  57. helpful
  58. helpings
  59. helps
  60. hundredth
  61. imagine
  62. intuitive
  63. invest
  64. law
  65. life
  66. lose
  67. manage
  68. marginal
  69. market
  70. matter
  71. matters
  72. maximize
  73. means
  74. met
  75. minutes
  76. modern
  77. money
  78. movie
  79. naturally
  80. nauseated
  81. necessities
  82. obtain
  83. obtained
  84. offer
  85. offered
  86. opportunity
  87. options
  88. paradox
  89. pay
  90. people
  91. pioneering
  92. pleasure
  93. point
  94. put
  95. reach
  96. real
  97. reflected
  98. remember
  99. resources
  100. returns
  101. satisfies
  102. scenario
  103. selling
  104. share
  105. show
  106. simple
  107. simply
  108. situation
  109. smith
  110. song
  111. source
  112. spend
  113. spent
  114. spoil
  115. tells
  116. theoretically
  117. thinking
  118. ticket
  119. time
  120. track
  121. trip
  122. ultimate
  123. unify
  124. utility
  125. valuable
  126. vary
  127. wandering
  128. water
  129. worth