WTP

I had a Professor in college who started off one of his classes with the question:

“Say Michael Jordan received a $100M contract to play basketball. Is Michael Jordan worth $100M?”

Instantly, hands from across the room shot up, each with their own opinion. Some took several minutes to explain their rationale. Arguments of valuing championships, what those wins mean to the sports nation/city, the belief of overpaying for star athletes, and others were brought up. In the end, my professor said, “He’s worth it because that’s what they paid him.”

This idea of Willingness to Pay, (WTP) is the most important aspect of valuing anything. For it’s not the actual value, (which is often difficult to measure) but the perceived value that matters.

Understanding this concept is vital in our own lives as we make daily decisions with budgeting and purchasing. These decisions will be measured based on our perceived value, and no one else. What we might pay $100 for, someone else might not pay $1, and vice versa.