The Rule of Diminishing Marginal Return

There is a well-known law in economics called the ‘Law of Diminishing Marginal Utility’, which states that as consumption of a good or service increases per unit, the satisfaction derived from consuming an additional unit or more will lead to a subsequent decline in its overall utility. In other words, the more you consume, the less satisfied you will be with each additional product or service you purchase. The first thing you buy, use, or consume will be the most satisfying but the 2nd, 3rd, or 4th unit of the same item you utilize will not be as useful and could even not satisfy you at all.

This fundamental law in basic economics is one that is worth memorizing because it makes total sense. The first chocolate bar you consume will be delicious and fulfilling. You may not be satisfied with just one chocolate bar so you may end up eating another one since the first one was so tasty. However, anyone will tell you that the 2nd chocolate bar will not be as tasty or satisfying as the 1st one and you may even end up with a stomachache from eating too much chocolate if you are not careful.

The ‘Law of Diminishing Marginal Utility’ does not just apply to economic principles but goes far beyond that in terms of being applied to human psychology. The act of consumption, I would argue, is not just an economic one but also applies to the psychology of choice and how we live our lives. Everybody is a consumer in one way or another whether it’s the air we breathe, the water we drink, or the food we eat each day. Without any consumption, we would not survive but it is our choices that define our consumption habits and how we behave not just as economic actors but as human beings.

In a psychological context, instead of calling it the ‘Law of Diminishing Marginal Utility’, I would refer to it as the ‘Rule of Diminishing Marginal Return’, which is similar but discussing more how it’s a rule of life that the more we buy of something, the less return on that investment we will get out of it. The first of something whether that’s the purchase of a new car, a first trip to a new country, or the first time you try a new cuisine. These experiences will captivate you and do its job of putting your happiness level to a 9 or 10, but it’s a rule of life that it won’t stay there. While the memory of that experience will provide you with satisfaction and joy in its remembrance, your psychological state will revert to the norm of being level in terms of happiness or satisfaction with life. You may try to buy or consume more of something to recapture that feeling of happiness but that would actually be counterproductive in the long run and actually create false expectations compared to the first time you purchased or consumed that activity, experience, food, or drink.

How do you avoid the marginal returns of consuming, buying, or eating too much? Well, that is not easy to do but that is part of being a mature and responsible adult. You must have enough willpower and be able to reason with yourself that one more plate of food, one more drink, or one more car will not do the trick in giving you happiness. You must realize that your base level of happiness as a person won’t change as a result of consuming more and it may end up backfiring by causing your satisfaction to be lower because you consumed too much in the first place.
Being able to limit your consumption and controlling your vices will make you better off. If you can master your desires or your urges, then you can focus on bettering yourself or making you happier through more sustainable means. If you are working on personal projects, devoting yourself to a volunteer cause, or working on improving yourself mentally and/or physically, that kind of satisfaction will have a higher return on investment than just mindless consumption.

Consumption of goods and services may spike your happiness and satisfaction levels in the short run, but that kind of joy is short-lived and can often feel isolating if you are not sharing in that joy with others. That is why a meal with friends or family is often much better than eating by yourself. It’s why travelling with a close friend will generate more memories than a trip by yourself. It is not wrong to sometimes treat yourself to a nice meal, a nice trip, or a new gadget but shared experiences will make you happier and create more memories than those times that you were on your own in consuming.

One should carefully watch what they consume and monitor how much per day, per week, per month, and even per month they are consuming whether that’s food, drink, goods, etc. Everything in moderation is a good way to be as an adult and if you want to abstain entirely from consuming something, then that is an admirable thing to do as well. The worst thing you would want to do is to become overindulgent or overly reliant on a consumable good to make you happy or give you long-term satisfaction in life. You know better than anyone else the limits of your consumption and that true happiness is derived through shared experiences in life and of challenging yourself to be a better and more developed person.

In the long-term, I believe you get increased rather than diminished return through producing instead of consuming, by challenging yourself mentally and physically, and sharing yourself with others whether that’s through a good meal, a volunteer experience, or a worthwhile group project. All the chocolate and ice cream in the world won’t add to your happiness but would rather detract from it. A bowl of ice cream or a chocolate bar will satisfy you for a few hours, but you eventually will be back to that same level of happiness homeostasis that you had previously.

Instead of looking to keep yourself content or happy all of the time, know that happiness is not everything in life and that you benefit more from the hard work and the struggle that you put yourself on a daily basis than of just sitting on the couch and eating ice cream until the end of time.

When you get to that 2nd or 3rd bowl of ice cream, you should realize that you’re starting to get a stomachache and that you should stop yourself before you get sick. The diminishing marginal return of trying to seek out happiness through ice cream should be counteracted by getting off the couch and into the gym to start working out those extra calories you just gained.

By embracing the struggle of a gym workout and burning off all that ice cream, you’ll be sacrificing that short-term happiness for that long-term struggle but eventual satisfaction of improving yourself physically as a person and making yourself happier and healthier in the long-run as a direct result of your choices and decision-making. You should not be afraid to indulge a little bit every now and then but remember that life is better experienced in moderation and you should always watch what choices you are making as you go through your life as both a consumer and a producer.

The Producer vs. Consumer Mindset

We are all consumers but not all of us are producers. This dichotomy between producing vs. consuming has become especially relevant in the 21st century when levels of consumption are at historic levels. When you think about it, being able to consume in different parts of life has never been easier or faster. You can stream vast amounts of music, download movies within minutes, and have food delivered to you at the click of a button. These days, you don’t even have to leave your house or apartment to consume food, books, music, movies, etc. Everything has become more widely available to the average person and that also includes education.

The Internet and other forms of technology have made it easier than ever to consume but despite that fact, is that all we should be doing? Aren’t we met to do more than to order food online, surf Amazon.com for the latest book, or listen to multiple Pink Floyd albums for hours thanks to Spotify? I believe that recently we have strayed too much to being only consumers without realizing that what is most fulfilling is to produce something of value. There should be a balance between consuming and producing and it’s best to strive for a mix of producing and consuming in your life with the former being more of a priority. Consuming is easy but it’s been shown to not be fulfilling and the utility of consumption decreases consistently the more you do it.

While consuming is incredibly easy and requires little to no effort, producing is the exact opposite. Producing something of worth or of value takes some or a lot of effort and the results are not immediate. To be a producer, you need to be determined, patient, put your skills to the test, and be able to think outside the box. Even though producing may not be the most fun or most enjoyable thing to do, it’s really what we as human beings are meant to do and what also gives us the most satisfaction.

If you think about it, our ancient ancestors had to produce or create in order to stay alive and sustain themselves. Back in those times, you had to catch a fish, spear a buffalo, or even a build a hut or you would not last very long. Simply put, our intrinsic value as people is based off of what we can contribute to our friends, families, communities, and the greater society. Now, this does not imply that you have to be producing something of value for others all of the time in order to be considered valuable. You don’t have to produce something for the sake of it or just to impress someone. You should find something to produce for yourself because you’ll build up some self-confidence as well as create more skills and abilities for yourself. You should choose to produce over consume yet you must figure out on your own what you would like to contribute whether that’s writing a blog, creating a piece of music, making an invention, or starting a business.

Why do we choose to produce? It reflects our innate sense of purpose and wanting to leave an imprint on the world regardless of how small or big it may be. There’s a true sense of satisfaction that you get from creating something out of nothing. Our ideas and our thoughts when they are put into actions can create a massive ripple effect that can change our lives if we do big things. The richest companies in the world such as Amazon, Google, and Facebook started out as simple ideas in the minds of their founders but they became real through actions and deeds after starting out just as words.

A producer takes their thoughts and ideas and turns them into something real. For each person, what they would like to produce is going to be different but the simple act of deciding to produce something instead of consuming all of the time is a beautiful thing in its own right. You can start out small by producing a poem, a painting, a piece of music, and then once you successfully create those things, you can aim bigger and better for producing things like a screenplay, a novel, a film, a multi-million-dollar business, etc. If you do not know what to produce but would like to start somewhere, think of which skills and abilities you currently have and make a list of what interests and hobbies you have as well. It’s also best to realize that producing something of value takes serious hard work and effort. It is not an instantaneous event and takes months and sometimes years depending on how big the thing is you’re producing.

Once you get the first thing you produce out of the way, you’ll start to realize how useful, fun, and innovative it can be to be a producer instead of a consumer. As mentioned before, there’s an innate sense of satisfaction out of crafting something from nothing as well as the fact that you used either your mind or your body or both to make it happen. Happiness, I would argue, does not come from consuming the things of this world but rather producing things to bring into the world that weren’t in existence before.

Depending on what you produce, you’ll also be helping people with what you make whether it’s a house that a family will live, a business that will hire employees, or a bridge that will connect town and city together. Also, the thing that you produce will last beyond your life here on Earth and can even transcend time if it is that impactful. Beyond the creation and production, what you’ll be creating is a legacy that you’ll be remembered for. Could you say the same for someone who doesn’t produce anything at all and just consumes? That person won’t be remembered for anything because they will not have left a legacy of producing for themselves, their family, and humanity while they were around. Consumers may benefit in the short run but not in the long run.

Our lives can both be about consuming and producing but think about what would be a better use of your time. Is it binging Netflix for multiple hours or creating a garden to grow fresh vegetables? Is it about playing video games or coming up with ideas for a new novel? Is it better to eat ice cream from Ben and Jerry’s or to make it from scratch? Depending on what answers you gave for these questions, you will be better off as a consumer or a producer.

Everybody has different priorities with what they value in their free time. If you find that you’re producing enough in your day to day work, keep doing that. However, if you find that you’re consuming all the time and not really producing beyond what you’re paid to do, you may want to reconsider how you spend your time. Giving yourself a chance to do more, write more, build more, play more, etc. is likely to be much more satisfying for you and give you a sense of fulfillment and even happiness that can’t be found in Netflix, Spotify, or UberEats. By being a producer, you’re creating value for the world and you’re building your skills, abilities, and knowledge at a time when you can do more than ever if you’re willing to educate yourself and put those traits and turn them into conceivable actions.

I’ll leave you with the idea of compiling a list of your day-to-day activities, map out the amount of time you spend on consuming or producing. If you’re consuming for hours on end and you feel listless, demoralized, or sad, you can turn it around by starting to take those free hours of your time and turning it into something productive. Producing is simply harder and more intensive than being a simple consumer. However, the return of investment on your time put into producing something far outweighs any benefit(s) you would receive from consuming a video game, an order of take-out, or a pop album.

Start from scratch and do your best to take the skills and abilities you have and turn out something totally original that only you and you alone came up with. The books you’ve read, the movies you’ve watched, the music you’ve listened to, the classes you’ve enrolled in, the people you’ve met; that kind of consumption isn’t inherently bad but you should take the time you spent consuming other people’s products and using that knowledge to create your own product. Your own novel, your own play, your own symphony, your own business, or your own recipe: these are all ways that you can find fulfillment and meaning as a producer in this life. You won’t have forever to do both producing and consuming so why not choose producing because you may find that you’re not only good at it but you like it just that much more than being a consumer.