Pricing in Emotion

Traditional markets are predicated upon the idea that prices are set based on demand, which is derived from underlying financial analysis. While this reliance on fundamentals may often be far from the truth in practice, it’s a useful heuristic.

Many of these same factors come into play in the market for collectibles. Demand is paramount. Underlying financial analysis is often used to identify trends in sales history. Both markets can arrive at a price in this way.

But when it comes to collecting, there’s an added delta between the objective price to the average consumer & the subjective price paid by the ultimate high bidder. 

This premium isn’t the result of some market inefficiency. Instead, it’s a remarkably efficient mechanism by which the market accounts for human emotion and converts it into dollars and cents.

It’s like Adam Smith’s invisible hand if he spent his efforts collecting rare memorabilia rather than studying moral philosophy.

When evaluating Apple stock, expert projections and ratings, market sentiment, and quarterly reports are among the myriad factors used by investors to gauge value and the ultimate decision of whether to buy or sell. Apple’s legion of super fans are likely more biased towards optimism when considering this data, and therefore may be more inclined to dismiss negative indicators and embrace positive outlooks — though it would be extremely unorthodox to hear an investor explain their rationale for buying Apple stock as a purely nostalgic decision.

The caveat to this comes in the form of one of the more popular nuggets of basic stock market wisdom: Invest in companies that produce products you use. But even this can be traced back to the faith one has in a company’s ability to generate revenue based off of personal experience.

Considering this traditional framework and comparing it to the market for collectibles, the elements of personal experience, nostalgia, and emotion play a much larger role. A Michael Jordan Rookie Card or rare 1st Ed. Book does not have a quarterly earnings call or a noteworthy CEO at the helm. While they share facets with stocks like historical returns — often in the form of publicly available auction data — and market sentiment, the driving force behind all of these indicators is still a measure of cultural significance factored alongside personal preference.

It’s the memories of watching Jordan play in his prime, seeing his sneakers on retail shelves, or the emergence of cultural events like The Last Dance docuseries, that can ultimately spur an individual to decide they are willing to pony up massive amounts of cash to own a piece of that history. This is not to discount the impact that broader trends may impart on such a decision, namely the ability to identify and predict the demand that these feelings will generate in other collectors. But this is still a far cry from the types of indicators applied to the stock market as it is still based on culture and history (even if those are facets that drive data).

Would a Knicks fan be willing to pay the same amount to own a Jordan card than a Bulls fan? Maybe, but considering their memories and emotions tying them to Jordan are ones of heartbreak and misery, it seems far more likely that the Bulls fan would place a higher premium on a vestige of their personal golden days.

These are the points of subjectivity which drive the market, creating that mechanism for the market to factor in otherwise incalculable human emotion, and arriving at a price that varies wildly from investor to investor.