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“LeBronomics”

by Elaine Schwartz    •    Jul 14, 2010    •    292 Views

Called “LeBronomics” by NPR’s Planet Money, LeBron James’ decision to go to Miami was about much more than $99 million. Instead, the key issue was “utils”.

Whenever economists want to quantify satisfaction, they use the “util”. If LeBron had selected Chicago, local residents might have felt 10 extra utils every time they watched their team play. (I just chose 10. The number does not matter.) Choosing New York, though, would have resulted in many more utils. 2009-2010 was a 50-loss, disappointing season for Knicks fans. Consequently, just seeing LeBron at every game would have generated lots of extra happiness for many New Yorkers.

By contrast, according to the Planet Money people, selecting Miami created the least extra happiness in the United States. Because Miami already has other superstars, adding a third would not create very many more utils. We could compare this to the utils we get from the first bite of a chocolate chip cookie and the 15th bite. We get much more pleasure at the beginning before adding lots more.

The Economic Lesson

Getting less extra satisfaction from each additional unit is called diminishing marginal utility.

We might add that LeBron James did not experience diminishing marginal utility when he added to his income because Florida tax rates are among the lowest in the country.

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