More is Less, Less is More

Marginal Utility - the most important value system paradox.

There is a lesson in basic economics that should be familiar to most people. If I am hungry, and have nothing to eat, then an apple would have great value to me. If I were desperate enough, I might be willing to pay a lot for just one apple. If I already have just one apple, then the second might not be quite so valuable to me. If I have a bag with sixty apples, I likely have no real interest in adding one more to eat.

This is the Law of diminishing marginal utility. Utility is what economists call satisfaction or happiness; marginal utility is the incremental change in utility from the acquisition of one additional unit. The Law of diminishing marginal utility states that you get diminishing satisfaction from each additional unit consumed, based on how many you already have.

In my many years of talking to audiences about the value crisis, one slide has been there almost since the beginning, and it still conveys an important part of my message. Part of that is the law of diminishing marginal utility. (In fact, in revisiting the slide for this essay, I may be modifying my fundamental message slightly! Stay tuned…)

“If it’s snowing and I don’t own a snow shovel, then buying one is of great value to me.” That’s the green line. “If I have a friend who helps me shovel, I might buy a second one, but it is not worth as much to me as the first. I certainly will not buy three—two is enough.” The arrow indicates peak sufficiency. “I am not willing to buy more than two, because they would be more of a nuisance than a benefit.” This corresponds to the law of diminishing marginal utility—each additional shovel gives me less happiness, until they actually start to produce increasing dissatisfaction.

This law also encapsulates a profound attribute of value in the natural world: More is never ALWAYS Better. Everything in Nature has concepts of sufficiency and “enough”.

The red line, however, is not a natural phenomenon. That line represents the value of shovels to the store that sells them. If the first and second shovels are $30, so are the 30th and the 10,000th shovel. The profit is the same every time, and, for sales, More is Always Better.

Starting with that simple idea, we can go in many directions. For example, the Law of diminishing marginal utility helps to explain the modern addiction to the pursuit of wealth…

Why do the rich get richer and the poor get poorer? I’ll give you three reasons:

1. In the case of monetary wealth, any innate sense of sufficiency is short-circuited by something called hedonic adaptation. We aspire to a level of wealth as being bliss, but when the lucky rich get there, it becomes everyday and they are motivated to move their level up again.

2. The more money they start off with, the faster they can make more of it. This is partly due to social conventions (connections, education, access to financial managers) and partly just pure math (like compound interest).

3. Hedonic adaptation may drive them forward, and their money facilitates its own growth, however, the law of diminishing marginal utility states that as their net worth goes up, it takes an ever greater increase to produce the same dopamine hit of happiness.

The third reason can easily be illustrated by the two values that people at opposite ends of the wealth spectrum put on a ten-dollar bill. A homeless person who has nothing but a few coins would place great value on their single ten-dollar bill. A billionaire, on the other hand, has hundreds of millions of ‘ten-dollar bills’, and each marginal increase gives them less satisfaction than the one before.

In summary, even though the rich can get richer faster, it takes more money to produce satisfaction for them, and that drive never goes away.

What If You Flip That Around?

Here’s an interesting proposition: Might it be possible to psychologically increase the ‘utility’ value of everything you own? Perhaps it is possible to flip that phenomenon around and use the law of diminishing marginal utility in reverse, creating a ‘Corollary of increasing marginal utility’.

Let’s use an actual (in economics) but somewhat arbitrary unit of satisfaction called a util. If you don’t have a shirt to wear, your first shirt might provide 100 utils of satisfaction. By the law of diminishing marginal utility, your second shirt will be fewer—say 60 utils, giving an average of 80 utils/shirt. By the time you get your 10th shirt, the average might be just 25 utils per shirt—a fraction of the first.

What if you decided to stop buying new shirts, and maybe even reduced their number? Every time you gave one away or decided not to replace one that wore out, the average ‘util-value’ of all of the other shirts would go up. We can prove this sort of works by imagining a scenario where we only pack two shirts for a long vacation. Each of those shirts is worth a lot more utils (i.e. they are more important to us) in that situation than when they are just two of many more choices back home.

Reduce your quantity of stuff, and increase the satisfaction value of what remains! Could this actually work in the real world? Yes, I believe it can!

At first it seems impossible. How can you gain utility by giving away useful things? The key is to keep in mind that there are two different measures of utility: the average (‘utils’ per shirt), and the sum (total ‘utils’ of all shirts). My corollary suggests that as you reduce the number of shirts the average (i.e. utility of each individual shirt) would go up. Now, whether or not the sum goes up or not depends on where you are on the marginal utility curve. Referring back to my shovel graph above, as the number of shovels increases beyond two, they become a nuisance, and the total satisfaction (sum) actually decreases as you add shovels. Getting rid of excess shovels does increase satisfaction. One comprehensive version of this approach to life is called voluntary simplicity.

Again, the pivot point (both for the graph and the value system selection) is the crucially significant concept of enough.

There are other complicating factors with this exploration, including evidence that humans tend to assign twice the emotional weight (utils?) to losing things as to gaining things. (One key to making this all work is applying these principles before you buy the extra shirts!) It’s not yet intuitive, but the logic is there, and I still suspect there is value to this thought experiment. Perhaps, dear reader, you have some perspective to add? I would love to continue this discussion.

In Summary

Back when I defined the value crisis, I pointed out that a crucial distinction between the value system categories was how we measure successfulness. If your idea of success is owning more and more shirts, know that (1) each new one will give you less joy than buying the previous one did, and (2) you will never be happy.

If, instead, you define success as being happy with enough, and focusing on seeking other joys, you will find them.

I assert that the distinction between Happy and Unhappy people is not the line between the Haves and the Have-nots; it is between the Have-enoughs on one side, and the poor Have-not-enoughs along with the rich Will-never-have-enoughs on the other side.