It's always only a few percentages of "betterness" that cost the big bucks. Same with microphones. A $3000 microphone doesn't produce ten times better recordings than a $300 one, but 5% better would justify the extra cost for many recording artists or engineers. (Also for many hobbyists, even though they are unlikely to hear the difference and other components in the chain may be bigger weaknesses, or less money for acoustic room treatment would yield far more benefits).
If a hobbyist mandolin player drops $23,000 on an instrument, it's likely just for the "experience". I imagine it provides a massive motivation boost and just "feels awesome". No doubt for some it is also about bragging rights. Might not even be a bad investment. In those price regions, you should not have trouble re-selling something for what you paid for it. And who knows, it may gain value even.
I agree with everything said here. I'm not a car enthusiast, so I can't understand why anybody would pay good money to drive a Mercedes to work when my Camry does a fine job at a third the price. And I sure can't understand why someone would pay 10 times as much for an Alfa Romeo or a Rolls. And yet, people obviously do, and obviously find value in it, whether it's a better driving experience, the status of a fine car, or just the pure thrill of owning a premium vehicle.
I've been a long-time participant in the mandolin community, and I can't tell you how many times someone has posted something like "I got to try a $25,000 Gilchrist and it wasn't any better than my <<insert name of inexpensive import mandolin here>>. And the same things are true every time:
1. If you can't tell the difference between a $500 instrument and a $25,000 instrument, congratulations! You just saved yourself $24,5000.
2. Don't assume that because you can't tell the difference that there is no difference
3. People who make that level of investment do see the value; whether it's tone, playability, status or thrill-seeking will always be up for debate.
4. $25,000 isn't a lot of money to some people
And most importantly:
5. The subtle differences between a good instrument and a great instrument are HUGE differences to someone who plays professionally or simply has a deep passion for the instrument.