No. 5 · Decisions · Economics
Law of Diminishing Marginal Utility
Each extra helping of a good thing gives you a little less than the one before.
In the Almanac
“Five sacks of grain”, 1889 · “Spotify”, 2015–2019
Both stories in full, three ways to use it and where it misleads.
Get the AlmanacListen · Watch
Questions
What is Law of Diminishing Marginal Utility?
Diminishing marginal utility explains why the first glass of water to a thirsty person is precious and the fifth barely matters. Each extra unit of the same thing adds less value, which is why Spotify stopped relying on simply adding more songs and built features that created new kinds of value.
How do you use Law of Diminishing Marginal Utility?
Before acquiring more of something, ask how much the next unit will truly add. When returns in one area flatten, shift time, money, or effort to where it will make a bigger difference. Learn to notice the point where more stops making you meaningfully better off.
When does Law of Diminishing Marginal Utility matter?
Law of Diminishing Marginal Utility is one of the 35 mental models for decisions, the situations where you ask: Which way should I go? Within that, it belongs to “Weighing the options”, alongside A/B Testing, Back-of-the-Envelope Calculation and Cost-Benefit Analysis.
What is an example of Law of Diminishing Marginal Utility?
Two stories show it at work: Five sacks of grain (1889) and Spotify (2015–2019). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Law of Diminishing Marginal Utility?
Law of Diminishing Returns, Utility Values and Compounding Effect. Law of Diminishing Marginal Utility itself comes from economics.