Karl Marx famously based his value theory on the amount of labor that went into a good. The political implications were that if the worker did not receive 100% of the final price of a good he made, he was being "exploited." The same foundational idea is shared by the experts equating AI development with Skynet, who see the price of a good being dependent first of all on the cost of the ingredients. As the main ingredient, humans offer the scarcity that will keep the cost high enough to afford a salary to the workers.

Until Austrian economist Carl Menger revolutionized economics by rejecting the above theory of value (based on the cost-of-production). Menger's breakthrough insight was to realize that "value is… nothing inherent in goods, no property of them, but merely the importance we first attribute to the satisfaction of our needs... and in consequence carry over to economic goods as the… causes of the satisfaction of our needs." (Principles of Economics).

The notion of consumer value introduced by Menger did not however simplify economics. On the contrary. Menger's value is a complex and psychologically complicated concept. It took the absolute value proposed by his predecessors and turned it on its head by making it relative and deeply personal. This means that what is valuable to me can be useless to you. You may see music as nothing much but background noise that will help you focus on your reading. I may be an audiophile getting shivers down my spine when I hear an amazing reproduction of my favorite song. Our friend may appreciate the atmosphere and the shared experience of a live show. You will most likely listen to the music for free by turning on the radio. I will get a Tidal subscription and spend thousands of dollars on audio equipment, while our friend may travel the world going to festivals.

And we may all be into the same music genre, maybe even listen to the same artist... or the same song. The melody itself had the same production costs but the value we derive from the same successions of notes differs from person to person. And this makes us pay vastly different amounts of money to satisfy our desires.

Menger's observation also means that our purchasing decisions are complex enough that it's extremely hard for any of us to justify most of them. Why do I spend huge amounts money on vinyl records when I have access to the world’s music library for free? LPs degrade pretty fast, hold only a few songs, they are hard to maneuver compared to the ease of use of Spotify-enabled devices. It's not the quality of the sound either, as I am conscious enough to admit that I cannot tell the difference, and if I were to pick my favorite medium in a blind test, I will most likely pick the digital version. But apparently I value the habit of turning the disc, the physical manipulation of the vinyl gives me an emotional thrill that is hard to explain. I can't explain it, but I frequently pay $50 for a good album in this format. And most likely the record was mass-produced by a machine with minimal input from a human.

The ingredients of value

Consumer value might be a rather-fuzzy concept but getting close to understanding it is a key attribute of anyone working to bring new products to market. It is something I have been doing my whole career, as a founder of several companies or as a product manager. What makes it hard is that, as HBR wrote in 2015, "the amount and nature of value in a particular product or service always lie in the eye of the beholder". Reid Hoffman also likes to point out people are terrible predictors of their own tastes or preferences. He illustrated this piece of advice by pointing at Mark Zuckerberg, who is a master at listening to the users of Facebook while selectively ignoring their feature requests. It's why we have user revolts every time Facebook changes something while the engagement number spike.

At a very high level, customers have a few categories of needs they want a product to fulfill:

Some are functional needs. Washing the dishes is one example. Creating a report for your boss is another.

needs. Washing the dishes is one example. Creating a report for your boss is another. Some are purely social . We are social creatures and we have to take others into account as part of our value map. We may want to look trendy or be perceived as an innovator in the workplace.

. We are social creatures and we have to take others into account as part of our value map. We may want to look trendy or be perceived as an innovator in the workplace. In a lot of cases we seek emotional fulfillment. We want something to thrill us or to give us a feeling of awe. It's part of the reason we share rage-inducing political articles or funny cat-vid eos.

We are complex beings and our needs, as consumers, are complicated as well.

The functional needs, represent just a small part of the characteristics that we humans appreciate when we make a purchasing decisions. When asked to justify a recent acquisition, we may point to discrete functionalities, but in most cases these are just after-the-fact rationalizations.

Our human limitations may keep us from being able to define our value judgement algorithm but there is still hope for the product person. HBR proposes that universal building blocks of value do exist, and advanced 30 of these elements of value. These elements fall into four categories: functional, emotional, life changing, and social impact. Some elements are more inwardly focused, primarily addressing consumers’ personal needs: