While Eugene Fama may claim to not know what a bubble is, I’m pretty sure that the generally accepted definition is something along the lines of “a situation in which the price of an asset is significantly above its fundamental intrinsic value.” A couple of years back, Planet Money illustrated that a kitten bubble could be created by holding a “beauty contest”- i.e. asking people to choose the animal that they thought other people would find the cutest rather than having them choose which animal they personally thought was cutest. So what does this have to do with Banksy?
In case you haven’t been following him, Banksy has been going around New York “vandalizing” various random locations– and earning the owners of the properties quite a bit of cash in some cases, since Banksy works can sell for well into six-figure territory. So what happened when he had a random old guy try to sell some of his (signed) stencil work in Central Park for $60 each? Well, this:
So, there are a few potential explanations for this behavior:
- People didn’t even pay enough attention to notice what was being sold in the first place. Think about it- if you walked by people selling random art on a daily basis, would you thoroughly check it out each time?
- People, on principle, didn’t want to support somebody who was trying to profit by ripping off Banksy.
- People don’t intrinsically (i.e. for their own consumption purposes) value the Banksy works at a price of $60, suggesting that the prices that Banksy gets for his work are not so much for the work itself but because Banksy is Banksy and they think that other people will be impressed/pay a lot of money for the pieces.
That last explanation is what leads to bubbles (or, at the very least, conspicuous consumption), whether they be in houses or novelty…well, whatever it is that Banksy creates. (I also wish that Banksy hadn’t signed the pieces and had just documented them on his web site, since that would at least partially take away the second explanation above.) In any case, it certainly reminds me of what happened when Joshua Bell played his violin in a DC Metro stop:
It’s a bit shocking how context, expectations, and perceived social preferences affect how much value we place on things. Sorry Fama, but it looks like the potential for bubbles is everywhere.
Update: Great minds think alike. =P