Measurement and Value Or which is more valuable, Diamonds or Water?

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Measurement becomes a hindrance when you sacrifice outcomes that are hard to measure but more valuable for measurements that are easy to gauge, or that are accepted by other people. The challenge is then to find the best measurements that are easy to gather and great to use.

An example where measurement may becomes a hindrance; how do you measuring the value of diamonds vs. water?

Most people see the obvious crux of the problem, namely, diamonds have a much higher retail value, but you die if you don’t get enough water.

So obviously price can be a hindrance to measuring the value (and impact) of water. So how could we change this way of thinking to get a more complete way of measuring the value of water?

Increase the dimensions and scope of measurement.

Example

The answer to “which is more valuable” is, it depends on what valuable means. Let’s review.

Value may be measured in a couple of different ways, 4 of which I think are very valid.

  1. Value = Total willingness to pay
  2. Value = Marginal Willingness to pay
  3. Value = Price
  4. Value = Market Value (price * quantity)

If you ask how much people are willing to spend in total on water vs. diamonds, it’s clear that over a year, or lifetime, that water is clearly more valuable.

If you ask what is the marginal willingness to pay, we’ll see that diamonds are generally far more valuable (for the first one)- would your rather have someone propose with a diamond or a gallon of water? People are willing to pay quite a bit for that first one- diamonds win this valuation.

If we look at price, then diamonds generally win- this may be thought of as a good indicator of relative scarcity. Diamonds are valuable because the De Beers family keeps supply limited, and hence, the price high.

Market value leads to a different conclusion- the results of price*quantity of diamonds is far outstripped by price*quantity of water globally- it’s not even close.

So we can see that depending on which valuation we use, diamonds or water may have drastically different valuations.

What does this mean about measurement as a hindrance? This comes back to our conversation yesterday about indicators of Charity Navigator; when we get hung up on certain indicators, or measurements that stop us from understanding the whole picture, then measurement is getting in the way.

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