Postneoclassical Movement in the Practical Theory of Valuation: The Trend from Value to Worth and the International Valuation Standards 2007
Abstract
This Paper provides an overview of recent developments in the value and valuation theories, not bypassing last year's Nobel Prize in Economics award to R. Myerson which is treated as the event again heralding the acknowledgment of the individual's worth perspective and its practical impact on valuation theory after many years of its obscurity under the shadows of the Modern portfolio theory (MPT). According to one classificational practice, we regard such a comeback of the individual's worth perspective as a strand within the postneoclassic economics movement. It is argued that currently there exist two types of pricing models based on the postneoclassical valuation perspective: 1) gains-from-trade models formulated in the game-theoretical language of modern economics and utilizing the notion of Nash equilibrium as a stable solution and 2) zero-gains-from-trade models which, while retaining the 'transactions based perspective' of valuation still seek to decompose worth estimates (treated as a priori exogenous inputs in the previous class of models) and tie them up with a broader prevailing investment climate through the built-in reflection of portfolio composition practices. Whilst the former class of models has gained wide recognition among economists and valuation theorists worldwide, this latter zero-gains-from-trade class has only recently been proposed and analyzed in works by Vladimir Michaletz, Victor and Valeriy Galasuyk and others but has much more to commend itself in terms of its practicability and ease of use. Hence, this Paper draws comparisons and highlights differences between the two classes of models based on 'understanding-the-world-in-terms-of human-actions' postneoclassical/Neo-Austrian paradigm. While such worth-based perspective has by now been firmly established among the theorists, it still awaits recognition from standard setters of the valuation profession. Since a focal role in the valuation standard-setting process resides with the International Valuation Standards Committee, the Paper proposes a way to trace all bases of valuation existing in the current 2007 corpus of the IVSs to the individual worth (Investment value) and formulate other bases of value in terms of it. Such a reduction is illustrated with what is called the 'Venn's diagram of the Bases of Professional Valuation'.