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Friday, 13 July 2018

Why 10 x more doesn't equal 10 x the value ​



As children when we like something, we want more of it. We like playing with a certain toy so the logic goes that more toys will be better. This line of thinking carries through to adulthood.

We get value from one book, so we think having 10 of them will bring us 10 times the same value. We get value from one t-shirt but surely 10 of them will provide more value. A roof over your head is valuable but an extra bedroom, bathroom, double garage, workshop and annex will better...right?

Yes and no.

We get trapped in the thinking that if something brings us x amount of value then say - 10 of them will bring us 10 times more value. However, in economics, the law of diminishing returns states that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish.

How does this apply to the real world? Here's Mark Manson's thoughts:

“Diminishing returns means that the more you experience something, the less rewarding it becomes. The classic example is money. The difference between earning $20,000 and $40,000 is huge and life-changing. The difference between earning $120,000 and $140,000 means your car has slightly nicer seat heaters. The difference between earning $127,020,000 and $127,040,000 is basically a rounding error on your tax return.

The concept of diminishing returns applies to most experiences that are complex and novel. The number of showers you take in a day; the number of chicken wings you inhale during happy hour; the number of trips home to visit your mother in a year — these are all experiences that start out highly valuable at first but then diminish in value the more frequently you do them (sorry, Mom).”


Or, for example, if you go from living on the street to living in a studio flat that’s a huge improvement! But if you then go from the studio to a one bed, sure it's an improvement but likely not as much. And then you upgrade to a 2 bed house, the second bedroom would certainly provide utility and value in terms of guests being able to stay, more storage space, a home office, but since you can only sleep in one bedroom at a time it doesn't improve your quality of life 1 for 1. The difference is incremental, iterative. What’s more, too big a house could cause further problems such as high mortgage payments, more to clean, more repairs, higher insurance etc.

Obviously if you have a true need for a bigger home, a second car or multiple TVs because your family is growing then go for it. I'm not here to judge. The point is not that it's bad to want or to have more than one house, car, phone, gadget but to understand that with each item, the value you derive from the second, third on so forth is not 1:1.

Once we understand this we might be able to curb our desire to equate more with better, and be a little more mindful in our purchases and wants.

2 comments:

  1. Katrina Weston13 July 2018 at 13:56

    I can equate with 'more does not mean better'. You can only read one book at a time, watch one programme, speak on one phone, drive one car, live in one house, look at one watch, carry one handbag. However, how does this equate to friends? Does more friends mean you are more popular, more liked, more thought about? Is it possible to catch up with them all or have quality time with each of them? We must define what we mean by 'friends', I can count mine on one hand. Friends are people who actually care about you and your life and health, they engage with you, they are there for you when in need and vice versa. Just a thought, something to ponder especially now we have social media.

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  2. I agree. It can definitely apply to friends as the more you have the less time you have to devote to each one, therefore a smaller amount of value derived from each relationship.

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