gpowell,
A further comment.
Consider the price paid for a DVD of the movie Groundhog Day in an auction market with an infinite number of interested participants and an infinitely divisible exchange medium.
It is almost certain that the winner will be indifferent to the win, or within a close approximation. Thus, the price paid is actionable and yet the economic agent is close to indifferent between the two states.
We call the price paid in this situation as the reservation price of the economic agent and define consumer surplus as the difference between the reservation price and the price that matches total demand to total supply.
This doesn't show what you want and doesn't quite seem right anyway.
Before I start making purchases, I have a limited amount of money and a knowledge of the array of market prices of the consumption goods that I might be interested in purchasing.
Each of those consumption goods has a subjective use value (or utility) to me that I can place on a single subjective scale of values, ranking them in the order that I prefer the satisfaction that they can provide in use.
Starting from the highest rank, I proceed to make purchases sequentially that will provide the most satisfaction. Each purchase must reflect a preference of an item over the cash price given up in exchange. After each purchase, the scale of values must be re-ordered as the marginal utility of the smaller amount of cash remaining increases. In addition, the ranking of the good purchased and its possible substitutes must fall as a specific form of satisfaction has now been at least partially satisfied.
With a limited amount of cash, the process will stop when the highest ranked remaining good has fallen in ranking below the increasing ranking of the cash equal to the purchase price.
Unless the amount of cash is unlimited, both the last good purchased and first good declined still will have very substantial subjective value. There is nothing in this process that involves indifference.
In your auction, the winner will be the one that is willing to give up the greatest amount of cash for the DVD. If interpersonal subjective valuations could be compared, and they cannot, we would be able to say that the winner, in some sense, subjectively valued the DVD more than its cash price more than any other bidder. But both he and any other non-zero bidder still are far from indifferent to a choice between the DVD and a cash bid.
Regards, Don |
