competition between individuals seeking to trade goods they possess and services they can provide for goods they perceive as being of higher value to them results in a market equilibrium set of prices emerging. This occurs during auctions. Bidders are able to express their belief in the value of each item via bids. As each person raises their bid, the value of the item rises even though the nature and function of the item has not changed. This behaviour can lead to Winner's curse. Labour theory of value Classical economists such as David Ricardo proposed a labour theory of value that states there is a direct correlation between the value of a good and the labour required to produce the good, concluding "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour." Ricardo clarified that this correlation did not effectively connect those with market prices, or 'value in exchange', seeing them as separately derived from the quantity of labour input and other production factors. Increasing wages would not necessarily cause price rises, but conversely price rises may not cause wages to increase. Carl Menger argued that production was simply another case of the theory of marginal utility, and that labourers' wage-earning potential is set by the value of their work to others rather than subsistence costs, and they work because they value remuneration more highly than inactivity. Diamond-water paradox The development of the subjective theory of value was partly motivated by the need to solve the value-paradox which had puzzled many classical economists such as Adam Smith and John Law. This theory, known as the diamond-water paradox, states that although water is more essential to survival and provides far more utility value, diamonds are valued a lot higher in the market. This paradox arose when value was attributed to things such as the amount of labor that went into the production of a good or alternatively to an objective measure of the usefulness of a good. The subjective theory of value presents a solution to this paradox by arguing that value is not determined by individuals choosing among entire abstract classes of goods, such as all the water in the world versus all the diamonds in