The law of diminishing marginal utility: make every bite count [#13]

Real-life applications of the law of diminishing marginal utility – taught through a simple story about banana bread.

The law of diminishing marginal utility: make every bite count [#13]

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 you’re 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 since 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 very happy with your choice. You're getting uncomfortably full, and the taste of bananas and nuts is growing old. If I offered you a fourth or even fifth slice, you would probably reject my advances (and likely 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. And in a bit, I'll tell you about how the law of diminishing marginal utility is actually extremely relevant to your life.

So what exactly is the law of diminishing marginal utility? Here's a definition:

The law of diminishing marginal utility means that the more of an item that you use or consume, the less satisfaction you get from each additional unit consumed or used. – Investopedia

(Also, saying "the law of diminishing marginal utility" gets old fast, so I'm going to shorten it to a more readable "LoDMU".)

I'm learning about LoDMU in my Microeconomics class right now, and it's one of the coolest real-life lessons I've learned from a school class. Here are a few intriguing applications of LoDMU...

  1. Work hours & total work completed – Working for longer hours (beyond a certain point) barely increases the amount of actual work you complete. Elon Musk is one notable exception to this rule, but you aren't Elon Musk.
  2. Business efficiency & size of teams – 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 a ton of their time organizing workflows instead of getting anything done.
  3. 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."

I hope this article taught you a little something. If you enjoyed, please subscribe.

And maybe – just maybe – instead of eating 3 slices of banana bread, you should only eat 3 bites.