Predictably Irrational? Do people have no value meter or are we conditioned to be irrational?

Dan Ariely wrote in his book "Predictably Irrational" that people don't have an internal value meter and that we rarely choose things in absolute terms. His specific quote (regarding the subscription options available at the time for the Economist) was:

"But how could they manipulate me? I suspect it’s because the Economist’s marketing wizards (and I could just picture them in their school ties and blazers) knew something important about human behavior: humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly. (For instance, we don’t know how much a six- cylinder car is worth, but we can assume it’s more expensive than the four- cylinder model.)"

I think there is much contemporary truth to Dan's point, but really, the idea that humans have no value meter isn't true. It's true that our value meter has been behaviorally conditioned so that we can't recognize objective or absolute value anymore, but that doesn't mean that meter doesn't exist or that it never did.

Humans DO have a value meter, but that meter has lost objectivity via behavioral conditioning that begins the day we're exposed to our first advertisement. An important reason our value meter has been corrupted (or lost calibration as such) is that most individuals no longer produce things of objective value in their day to day lives. Almost all of the value they produce to society is either manipulated or proxied by various mechanisms. Conversely, a person who produces a good from end to end has a clear idea of it's absolute value (say a person in a developing nation who manufactures their own clothing). But a farmer say who produces wheat and sells it to a wheat pool (which trades it on the commodity markets) has no clear understanding of the objective value of their good. All of the value in wheat is abstracted or proxied by markets, arbitrage, subsidies, pools and other forms of value manipulation. Another example is a programmer at Facebook or Myspace. Since people don't pay directly for the service, no one has any idea of the objective or absolute value of what they're producing.

Similarly, since money has no clear objective value anymore, it's nearly impossible to gauge the value of the currency you're spending to acquire goods.

Brand taxes also clearly corrupt the perception of value of a good, by increasing the price of a good without increasing the objective or absolute value of the good. The example I like to conjure up most is that of name brand colas. The cost differential doesn't arise from statistically significant differences in the ingredients (the objective or absolute) it's from the brand tax differences of the two products (the irrational or subjective).

When given the choice, people do also want objective or absolute evaluation criteria. The entire business of Consumer Reports is built around cutting through the irrational claims of advertisers and getting to the absolute value of a product. There are also many consumer advocate groups and truth in advertising advocates that seek to eliminate the irrational and exaggerated claims of advertisers.

So clearly, a person's value meter is there, it just needs re-calibration. And perhaps there are also two meters to consider, the objective value meter and the subjective value meter and perhaps they compete with each other from time to time. For example, when a person is presented with no other criteria with which to make a decision - other than the irrational or subjective - then they must make their choice by non-objective or non-absolute criteria.

So by virtue of these systems (and others), people are often forced to deduce value in relative terms. In fact, there are arguably no other ways for a person who produces nothing of objective value to determine the value of other things. The person who produces something of subjective value always relies on other frames of reference to determine the value of what they produce. That is not to say that objective value can or should always be the determination of value. When a person achieves self actualization and can produce things of subjective value to themselves, there is no other possible or reasonable determination of value than the irrational or non-absolute.

But not all value needs to be defined by subjective terms. Imagine for example that you produce a t-shirt that takes you 4 hours to produce. You visit your neighbor who produced a pair of pants that took him 4 hours to produce. You need pants and he needs a t-shirt. By virtue of the fact that each of your took 4 hours of your day to produce each good they would generally have an equal, objective value, so you make an equal trade. Or, all things being equal, two authors trade books that took the same amount of time to produce.

An additional point to consider is that for relative, non-absolute value to occur in the first place, there needs to be a stratified system of goods in place. So, there needs to be 4 cylinder cars, 6 cylinder cars and 8 cylinder cars in order to produce a stratified value hierarchy. However, if all cars are 4-cylinder cars and are equal in every other way, the only stratification that can exist is via the "irrational" or behavior conditioning.

If all features of absolute or objective value are equal between two products, the difference that remains is the irrational.