The first piece of pumpkin pie is a real treat. The second piece might be good. But we may almost have to force ourselves to eat the third. Instead of enjoying it, we’re miserable. Why doesn’t the last piece taste as good as the first?How to React to Diminishing Returns (NYT)
We’ve all experienced that moment when our enjoyment of something declines as we have more and more of it. With each additional unit, be it pie or something else, less and less value gets added to our lives. Why doesn’t adding more of something continue to add up to something better?
This concept of declining marginal returns, or utility, is something we often experience; but we rarely recognize when it happens in our lives. In fact, one of my college economic professors felt so strongly about making sure we understood it that she spent almost the entire semester on that single concept.
Whether it’s leasing a car or buying a new pair of shoes, at some point they’ll no longer be new, and the marginal utility of the car or shoes will probably fall to zero — or even go negative. By recognizing the role of marginal utility, we can avoid the costly mistake of expecting the new shoes we buy today to make us happier than the pair we bought last week.
Drinking too much water: We’re encouraged to drink more water to help us stay healthy. The amount that makes sense will vary by person and activity, but at a certain point, it stops being a benefit. In fact, drinking way too much water can hurt you. Taking too many vitamins: Your body can absorb only so much of certain vitamins, like vitamin C. After that, it just gets flushed out of your body. In the process, however, megadoses of vitamin C can cause things like headaches, insomnia and kidney stones. Buying too much plastic: Remember how excited you were the first time you gave a set of Legos to your children? That first time was magical. How many sets did it take before the Legos stopped being exciting and you had to come up with something else to impress your children?
Marginal utility can become incredibly expensive, both financially and emotionally. It can lead us to think that if we spend or do a little more that we can get back to the pleasure we experienced the first or second time. As a result, we keep chasing after a moment that may be all but impossible to find.
It may sound odd, but the key to dealing with marginal utility may very well be that we’ll enjoy more if we spend or do less...
We need more economics professors like the one mentioned in the third paragraph. What's amazing to me is that the concepts of diminishing marginal returns and diminishing marginal utility are well known in economics. Any economist can tell you what they are and even document them mathematically. Yet they absolutely refuse to see that there are diminishing returns to growth. That there are diminishing returns to productivity. That there are diminishing returns to population growth. That there are diminishing returns to technological innovation. That there are diminishing returns to complexity (as Joseph Tainter reminds us). And, yes, there are diminishing returns to happiness.
So you would think that economists would understand this concept. Too bad they don't seem to get it.