Economic Principle Number 11: Subjective Value of Goods and Services
The value of a good or service is subjective, differing by individual preferences.
Example: Value of a New England Patriots football ticket varies from person to person; cannot be graded as wrong.
Distinction between 'value' (subjective) and 'price' (objective); price is a market agreement, while value is personal perception.
Challenges of Subjective Value
Society often imposes opinions on what things should be worth, which can lead to misunderstanding personal value.
Example: Disapproval of someone's spending habits reflects personal values over that individual’s perceived value.
Law of Diminishing Marginal Utility
As consumption of a good/service increases, the additional satisfaction (marginal utility) derived from each additional unit decreases.
Total utility increases, but at a diminishing rate.
Example: Satisfaction from hamburgers decreases after the first consumption.
Application of Diminishing Marginal Utility to Relationships
Marginal utility applies to relational satisfaction where initial years provide higher satisfaction than subsequent years.
A decision-maker may switch between partners based on diminishing satisfaction levels over time.
A 'soulmate theory' can be proposed, creating subjective satisfaction numbers to justify relationship choice.
Key assertion: Quality changes in relationships can alter the application of the law (i.e. if relational quality improves, diminishing returns may not apply).