This is more like another Picaso painting with lots of squares, etc. The value in the photo is more than just what you see on the canvas, etc.
I've never heard Picasso undervalued so badly. His work is a lot more than airbrushing out buildings.
But he did say "People who try to explain pictures are usually barking up the wrong tree."
Of course you are right: There is more to the sticker shock than the "value" of the photo, too. Any piece of art being assigned a value is being assigned a value based on peoples' perceptions. Curiously enough, this is how monetary value works too. Unlike monetary value, however, the clique running the pricing game for these artworks (which mean next to nothing for most people) is relatively small and relatively isolated from the considerations that let normal people realize when they are paying far too much for too little. I've already mentioned bubbles as well - these prices don't stand up to scrutiny and their ability to retain value depends on more than a willingness to hold onto it until somebody of a similar mindset and deep enough (institutional) pockets comes along to replace the current owner in the chain of custody.
I ought to be thankful that at least this isn't like the Roy Lichtenstein mess - at least the photograph was the artist's.