The Law of Diminishing Marginal Returns

I didn’t get the memo of about the law of diminishing marginal returns.


Actually, I did get this memo, and it came in the form of a hefty economics text-book in college.   But this is one of those life lessons that I have to keep teaching myself, because I keep forgetting it.

For the uninitiated, here’s a definition:  “The law of diminishing returns is a classic economic concept that states that as more investment in an area is made, overall return on that investment increases at a declining rate, assuming that all variables remain fixed. To continue to make an investment after a certain point is to receive a decreasing return on that input.”  (There are lots of variations on this definition, and even some very fancy formulas, but this is the one I like best.)

As a principle of productivity, perhaps this all makes sense.  But applying this one’s personal choices is where this gets tricky.  If you like something, more of that thing is better, right?  Well, no.  Think of your favorite food.  For me, it’s any form of pasta with any form of tomato-based sauce.  The first forkful?  Sublime.   The second?  Just as good.  The first helping?  Yep.  Still good.  OK…round two, still delicious, but not the rapture on a plate that the first helping was.  Getting full really starts to distract from all of the fun things that are happening on my taste buds.  And heaven help me if I were to get a third helping…this would not be any fun at all.  The cruelty of the waistband completely cancels out all the pleasure of tasting even the most delicious foods. 

There are many memos in “Cool Hand Luke” and the egg eating scene is a fairly perfect illustration of how the law of diminishing marginal returns kicks in: 

(And even though this scene is kinda gross, Paul Newman in 1967…hubba hubba.)

We’ve all gone overboard at Thanksgiving, so it’s easy to predict that a second or third piece of pie probably isn’t a fantastic idea.  But how about money?  Does the law of diminishing marginal returns apply to money?  Well, according to this recent study, it kinda does.  There’s a point at which having more money is not going to make you any happier, and could perhaps make you less happy, at least, that’s the wisdom of the dearly departed Notorious B.I.G.


It is possible to have too much of a good thing and more is not always better.  The lesson gets more meaningful when I contemplate what I give up in order to have more of whatever that good thing is.  Do I want to give up my health and my girlish figure just so I can have more pasta, when I rationally know that “more pasta” is not as good as “just enough pasta.”  Do I want to sacrifice family time to work more so I can make more money?  What would the marginal returns be on those extra dollars?  Moderation…memo received.

© 2011 Jamie Walker Ball

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