7. The Law of Diminishing Marginal Utility
Matilda the Musical is the story of Matilda, a precocious 5-year-old girl with the gift of telekinesis. In “Bruce,” the evil principal of the school discovers that one of Matilda’s friends has stolen a piece of cake. As punishment, the sadistic principal forces Bruce to eat an entire cake, illustrating the concept of diminishing marginal utility. The first slice of cake can be tasty; people are eager to pay for the privilege. The second slice is not nearly as valuable. After a few more slices, the additional (marginal) utility from one more slice can be negative—that is, a person would need to be paid to eat an extra slice of cake.
Financial advisors understand that for most clients, delivering more and more gains is perceived with incrementally less value. If a client has no wealth, it’s a big deal to go from $0 to $100,000 (a gain of $100,000). A gain of the same magnitude from a base of $1 million, not so much. The law of diminishing marginal utility shows that identical wealth increases produce different impacts.
Wonderful. Marvelous. That makes me so happy. It gives me a warm glow in my lower intestine. Oh, cook
What’s the matter, Bogtrotter? Lost your appetite?
Well, yes. I’m full
Oh, no, you are not “full.”
I’ll tell you when you are full.
And I say that criminals like you are
Not full until you have eaten the entire cake
Matilda, The Musical opened: April 11, 2013
Number of performances: 1,555
Composer: Tim Minchin (music and lyrics)