The law of diminishing marginal utility: make every bite count
Illustrated with a story about banana bread.
I just baked you a loaf of delicious banana bread.
You think: "It smells incredible and probably tastes even better!" I offer you a slice, and you gladly accept.
The first slice tastes like heaven—you attempt to savor the sweetness while simultaneously devouring the slice faster than Usain Bolt runs the 200m dash. I’m both delighted that you like my baking and concerned that you can consume food that quickly.
I then offer you a second slice, which you are still very happy to accept. You eat the second slice (a bit more slowly) and are still quite pleased.
Then I offer you a third slice. You're not super psyched about eating a third slice, and you're already pretty full from the first two. But you don't want to seem rude. You take the third slice and slowly eat it.
By the time you're done, you're not happy with your choice. You're getting uncomfortably full, and the taste of banana bread is growing old. If I offered you a fourth or even fifth slice, you should leave my kitchen.
For every additional slice of banana bread you eat, you're going to gain less additional happiness. Seven slices of banana bread won't give you much more happiness than two slices of banana bread.
This intuitive economic concept is called the law of diminishing marginal utility:
the more of an item that you use or consume, the less satisfaction you get from each additional unit consumed or used. –Investopedia
I recently learned about the law of diminishing marginal utility in my microeconomics class. I'd argue it's pretty intuitive to grasp, but I like the name for the phenomenon[1]. A few interesting applications I found:
- Work hours vs. work completed: Beyond a certain point (~55 hours/week), it's extremely counterproductive to work more. This is probably because you end up being sleep-deprived and less motivated.
- Business efficiency as a function of team size: As you continue to add employees to a team, the total work output of the team continues to decrease. This is because once you have 100 employees, they make 20 gazillion Slack channels and spend all their time organizing workflows instead of getting anything meaningful done.
- David Perell's 3-bite dessert rule: "Most of the pleasure in a dessert comes in the first three bites. After that, you should stop eating it. As a reward, you can eat dessert more often because you don’t binge it."
"diminishing", "marginal", and "utility" are all just cool words ↩︎