Sunday, December 20, 2009

Diminishing returns

When I was sixteen I began studying for my economics A-level. I was finding it tough and I wasn't alone - the abstract theory in Lipsey's Economics wasn't making much sense to anyone in the class. Then one day, my teacher, attempting to explain the bell curve of diminishing returns, said something like:

'Stop looking at the chart and think of it like this. You eat one Mars Bar - yummy. You eat two Mars Bars - even more yummy. Then three - that last one wasn't quite so nice. Then a fourth - I'm beginning to feel sick. And a fifth - I'm sorry, do you have some soapy water...'

I remember that somewhat exasperated speech, because it was the moment something clicked. I get it, I thought, I finally get it. Mars Bars give you pleasure - but each one gives a little less than the last, until finally they stop giving any pleasure at all. And that's why the graph dips into negative territory. Of course, why didn't I see that before - it's just like getting pissed.

From an early age, we intuitively understand the law of diminishing returns - at least we do once we've stuffed our face with birthday cake and felt 'icky' afterwards. Our understanding of the concept is often reinforced in our teenage years when we drink one too many bottles of cider, or wine, whatever... you can have too much of a good thing, is pretty much the whole theory in an nutshell.

And in later life, if you are anything like me, collecting things can have a strong tendency towards diminishing returns. We start out enthusiastically, each acquisition giving us great pleasure; we delight in the occasional gem or bargain that boosts our collection. But somewhere along the way the joy of each find wears off, our desires gets more expensive or we start buying items to 'complete the set' rather than loving the object itself. I once paid more than a hundred pounds for the Observers Book of Folk Songs - it sits on my shelves unread.

Simon Garfield touches on this in his excellent and hilarious book, The Error World. It is subtitled, a memoir of obsession and desire, and it describes his love of stamps and the absurd length he has gone to in collecting them. After losing out at auction he is despondent (his bid of £6000 was trumped by one of £10,500); eventually he realises that his collection is no longer giving him pleasure. In the jargon of the economists he is experiencing 'negative returns'.

Christmas is diminishing returns on a grand scale. I love Christmas and I tend to throw more cash at it than I should, but I know deep down that the most of the pleasure could be had for half the cost. And sometimes spending less can actually increase our pleasure - forcing us to think about what we really would like to eat, or drink or receive as a gift.

This year, my mother in law has been ill, our plans have had to change and we will celebrate Christmas in Wiltshire before travelling to Wales on Boxing Day. We therefore need to buy enough food for Christmas Day and minimise what will have to be transported or thrown away the next. It's interesting to see how the shopping list changed - to understand what we really consider important to a special celebration.

Coincidentally, I struck Mars Bars off the list - I had wanted some for party a game that would only have irritated my boys. Which brings me back to my economic teacher. His name was Pete Johnson and after his little speech I used to pester him with questions, trying to 'make real' the abstract theories we were learning. As we went through the syllabus I had twice as many questions as the rest of the class combined - at one point he banned me from a lesson for being a nuisance.

I'm sure he was right to do so - quite possibly my questions were giving negative returns to everyone else. But he did have the good grace to call the class to attention at the end of term, addressing us in serious tones :

The average mark for this terms exam paper was less than 4o%. This is deeply disappointing - unless it improves, most of you will fail and have wasted your time. Even the second highest mark was only 60%, which shows the spread of your mediocrity.

There is however one exception - a member of this class who has driven me to distraction; at times I was convinced he was either an idiot or playing the fool. But clearly I was wrong. Mark Charlton, your result was 95% - from now on you may ask as many questions as you like.

I did too, and in truth I've never really stopped. Though just occasionally Jane will remind me that I've reached the point where asking another might not be the best of ideas.


  1. I did A-level economics and have a degree in agricultural economics, but the only thing I clearly remember is the Mars bar explanation of the law of diminishing returns. By the way, I failed my A level! Perhaps I should have asked a few more questions...

  2. I remember A level economics....well, studying for it. I only used it once later, when looking at competition law in the EU which at that point was fairly primitive...all this is the dark ages, you understand. I do remember hearing though that the Philips Curve was a now discredited analytical tool, which cheered me for some obscure reason.

    Diminishing returns was always clear, though. At what point does further input become unprofitable?

    Over the years and the changes of interests, I have paid closer and closer attention to this aspect...emotional input, professional input, financial input. It became clear to me how much input had been squandered, and the only connecting factor in this squandering was societal assumptions.

    So, to the best of my ability, I have tried to become aware of societal assumptions in my decisions about the continuance of input.

    Can't say it is 100 per cent successful, but it has limited waste of resources which I can then use beneficially.

    Thank you for writing a blog which always gives me food for thought...input never squandered here.

  3. The older I get the better i understand the law of diminishing returns and this definitely informs my ordinarily cheerful Christmas. Don't try too hard, that's what I say!

  4. Happy Christmas. Will be back. Grinding to a stop hence the quizzes. Interested as to how many blogs you average per week AND what else takes your time.

  5. I love the fact that he had the good grace to admit that he was wrong about you!! I don't think any of my teachers would have bothered doing that!!

    We've made the decision not to drive up to Scotland for Christmas (7 hours on a good this weather I don't even want to think how long it would take!!) so are staying home. We spent last night planning our Christmas dinner menu and who was going to cook what course...I'm quite excited about it now!

    C x

  6. This is the first time I've been able to understand this 'negative returns malarkey. Using food -especially chocolate - is always a good ploy for me. As for studying Economics - it is on a level with Higher Maths/Philosophy in my little world. I just don't have the required bit of brain.

    This is the first year we are not buying each other presents. Spare money has been scarce of late and there is nothing we really want - after 12 years of spoiling each other with luxury items for Christmas and birthdays. Now Mr FF has this Paris job starting on 4th Jan he told me he had bought me something. This one present will probably end up meaning more to me than all the fancy jewellery and expensive clothes he has bought me in the past.

    Have a great run up to these festive festivals.

  7. Not really clever enough to understand jargon like 'diminishing returns' but do understand that you don't have to spend money to have a good time!

  8. Yes I don't think more spending equals more happiness, if it did there would be much more happiness around.

  9. We've done Christmas on a strict budget this year and you know what... just as much pleasure for half the stress and no huge credir card bill waiting for me in January. Win. I've got it cracked at last!

  10. You are right, less is more in all aspects of life after you reach your peak around 16. For the two year old, more is more. Now, some might say that some people are still two years old in their minds but thirty four in body. Where does this leave them?

  11. My memory is scraping the barrel here, but didn't Kipling or someone write a verse along the lines of having five faithful friends who tought me all I knew: How, What, When, Why, Who?

  12. Don't know if you will read this Mark, but best wishes to you and your family for Christmas and the New Year.

  13. A simple Christmas becomes something you have time to enjoy rather than a chore. Simple really...

  14. As a business analyst it was my job to ask questions.

    At work I was well known for saying - Can I ask a question?

    The response was often a smile and But you never stop at one do you?

    We've had to simplify Christmas considerably for a number of years because we have to take it with us somewhere, prepare and cook it etc. etc., but it's been much more fun.

    Have a wonderful Christmas and a peaceful New Year, Mark.

  15. You've really set me off on this dimishing returns I am starting to see it everywhere...

    Including me thinking about blogging less!!!

  16. Good post Mark. Well done on achieving 95%! Impressive. I must admit that I am definitely getting less materialistic as I get older. I just don't know where to put the stuff (even though we have two houses!)...

    I can't do without books though. Very rarely do they go into the realm of diminishing returns. If they do..I put them to one side and go back to them to see if I feel the same about them.

    Happy Christmas in Wiltshire and Wales!