the final word
last installment of our four-part series (uno, dos, y tres), the pinky wars, i.e. last thoughts on non-dominant pinky market valuation, i promise. it’s clear that we’re all irrationally pricing ourselves high given the insurance argument, plus a few closing notes:
- keith richards insured his fingers for $1.6 million and heidi klum insured her legs for $2.2 million.
- “we may not value the each marginal chance of losing a pinky at the same price (increasing the chance from 1% to 2% may have a different value than from 99% to 100%) – since this is an all or nothing proposition, simply assuming that all marginal probabilities are valued equally is likely not correct.” — JH
- “[what] about total value of lifetime resources, the fact that 1 in 572 in one year is not representative of the actual odds of losing a pinky, people may prefer to get an F than risk their pinky, people may be more or less skilled /confident in their ability to ’shop’?” — TJ
moreover, i admit i maintain an irrational difference between the price at which i’d sell my pinky, in contrast to the amount which i’d demand for its loss. it should be the same, but my selling price is much higher and based primarily on emotional attachment and vanity …
…while my real loss/demand price is lower, based primarily on the insurance cost, which is likely based on real probabilities and earnings power …
this all explains why my willingness to pay for someone else’s pinky is much lower than the selling price of my own, of course — and in this exercise, since transplants/prosthetics are not allowed, my buying price is actually zero. is this some perversion of loss aversion?
so what’s the bottom line? there is no such thing as rational independent bottom-up valuation! down with fundamentals! long live relative valuation and momentum trading! i see a head and shoulders [top down] pattern emerging! quick — double down and bottoms up!
okay really, though, what’s the bottom bottom line? nothing, really. this was merely a thought exercise meant to distract the target audience of this blog (we, the unemployed and highly levered). the only conclusions i wholly support: ii) shop class at booth is a great idea, and ii) if you dig deep enough, the breakfast club has answers to all life’s questions.