Wednesday, February 17, 2010

What does it mean?

I was reading Warren Buffet's entry on wikipedia the other day and came across this phrase: "Price is what you pay, value is what you get".

I don't understand the phrase, or rather I do understand the phrase, but don't get the message it is trying to convey. I haven't Google'd the phrase but left it to stew in my brain to see if I could come up with the significance of the phrase, unfortunately it is still stewing.

The phrase is a tautology, it states a definition of two words, price and value, that is in no way controversial. So why does it make Mr Buffet's Wikipedia entry?

I really like phrases like this. They can convey so much information with so few words. I would not be surprised to find a book with the title "Price is what you pay, value is what you get", or that its an essay question on some Economics degree course. You can use phrases like these as names for ideas, names that are self explanatory.

An equivalent phrase from the software development world is "Premature development is the root of all evil" - you just have to quote this and everyone understands and rolls their eyes. (As an aside people often attribute this to Knuth, but it originally came from Tony Hoare and Knuth quoted him in "Structured Programming using GOTO statements", Knuth's repost to Dijstra's "GOTO considered harmful").

An interesting difference between the two phrases is that one is (nearly) a tautology and the other is obviously untrue - premature optimisation did not throw up Hitler. The fact that it is a tautology I think adds value, it almost says the message I carry is also a tautology - which it probably isn't.

I look forward to the day in some meeting I can say "Price is what you pay, value is what you get", hopefully no one will say WTF do you mean?

A personal favorite phrase of mine is "The talent is in the choices", I have used it in a couple of talks I have given and I am pretty sure that is all people remember from the talks; that they remember anything from one of my talks I see as a success. I have never been able to find out who first said this, but I know Robert De Niro used it. The choices an actor makes reflect his talent, talented actors make good choices - apparently he agonized for three months as to whether or not to have a moustache in Godfather part II. A software engineer is often faced with choices about how to design or implement something, good engineer's make good choices and clearly experience plays a part in this. And sometimes an obvious choice is not the correct one, and good engineers will recognize this. This is also why Agile development is so successful, you make a bunch of choices, they turn out to be bad, you refactor.

Phrases like these can also be used in a kind of harmful way. I remember at one meeting when we were talking about using a new technology that was rapidly evolving at the time (Web Services :-() and someone said we are building on sand, this was quickly and cleverly countered with "Yes, but its a better quality sand". By the time people had processed this statement and released it was complete crap the debate had moved on.


Blogger Barry Kelly said...

At first glance, "price is what you pay, value is what you get" seems to me to be a warning against over-reliance on market price as an estimate of value. By the Efficient Market Hypothesis, the price should include all the information available about the thing's value, so it should be no difference between the price and value expressed in a common currency.

But Buffet is a value investor. That pretty much means that he doesn't believe in the EMH, certainly not a strong version of it, and this little phrase is one of his ways of making that clear to people.

5:45 AM  
Blogger Jonathan said...

By "Premature development is the root of all evil" you meant "Premature * optimization* is the root of all evil" This is a Knuth quote.

10:32 PM  
Blogger Olli said...

The phrase refers to the core principle of a market. You will buy a good if the the price (measured in money) is at most as high as the value (which is very personal and subjective) you expect to get from the good. The seller will only sell if the price he will get is at least as high as his value of the good.

To make it more practical: The baker has a lot of bread. The personal value of a single bread for him is lower as the price he requests. The buyer (who has no bread) values the single bread higher (or equal) as the price he pays.

10:31 AM  

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