Have you ever wondered how the "geeky" economic concept called the "Utility Function" intersects with your daily preferences, choices, decisions, satisfaction, dissatisfaction, joy, tolerance, and intolerance in all your personal and professional relationships?
You see, the concept of "utility functions" originates from the field of economics and decision theory, where it was developed as a mathematical representation of individual preferences and choices. It is rooted in the 18th-century work of early utilitarian thinker Jeremy Bentham (1748-1832), who proposed that individuals seek to maximize pleasure and minimize pain. The utility function gained formal structure in the late 19th and early 20th centuries through the work of economists such as Vilfredo Pareto and John von Neumann.
John Stuart Mill (1806–1873) expanded on this idea, emphasizing the qualitative aspects of pleasures and the importance of higher intellectual and moral pleasures over merely physical satisfaction. It became a cornerstone of expected utility theory, introduced by von Neumann and Oskar Morgenstern in their seminal work Theory of Games and Economic Behavior (1944).
The utility function provided a framework for modeling rational decision-making under uncertainty, influencing diverse fields such as game theory, artificial intelligence, and behavioral science. Over time, the concept evolved to incorporate varying types of preferences, including ordinal and cardinal utility (i.e., qualitative and quantitative, respectively), and became a foundational tool for analyzing and predicting behavior in both economic and non-economic contexts.
Within the field of economics, we often seek to understand human behavior by examining your preferences and choices. So what is this "boring" thing called the utility function? How does this phenomenon play such a crucial role in your state of mind (and heart at times)? This mathematical framework helps economists quantify the level of happiness (satisfaction) you derive from "consumption." Ah, the good ol’ utility function—a "boring" thing only until you realize it’s the mathematical blueprint of human happiness (or at least, an economist's best attempt at quantifying it). While economists know this isn't a perfect science, they use utility functions to capture how much satisfaction or happiness you derive from your personal consuming habits or your personal experiences.
The expression "familiarity breeds contempt" highlights a psychological phenomenon where becoming too familiar with something or someone can decrease the perceived value or importance of that something or someone. Imagine the magnitude of the joy the boy in the picture experiences from the first few marshmallows. Now imagine the magnitude of the joy the boy experiences from the 20th marshmallow. Beware of the dragons of "diminishing marginal utility."
Here is a hypothesis to ponder: have you ever wondered why you feel lackadaisical in your relationship with your partner over time? Why does that "spark" seem to be slowly flickering? (Remember, this is a hypothesis for contemplation and self-reflection only.)
In the context of interpersonal relationships, the concept of marginal utility can explain the diminishing intensity of feelings and the dimming of that "spark of flame" between partners over time due to growing familiarity. Initially, each shared experience, romantic gesture, or intimate moment delivers a high level of emotional satisfaction, creating an intense bond fueled by novelty and excitement. However, as time passes and partners become more accustomed to one another's presence, the marginal utility of these moments tends to decrease. What once ignited passion—a spontaneous date or whispered compliment—may gradually lose its impact as the novelty fades.
Consider this: in economics, a utility function is a tool used to model consumer preferences, i.e., your preferences. It assigns a numerical value to different bundles of goods, allowing economists to analyze choices in a systematic manner. A utility function represents the idea that individuals derive varying degrees of satisfaction from different combinations of things (the myriads of goods and services, and friends, and conversations, and music, and so on).
For example, an individual might gain significant utility from a rare new luxury item (similar to the excitement of a new relationship). On the other hand, a routine activity in a relationship whose charm may decline over time due to familiarity could be watching movies together at home on Friday nights. Initially, these movie nights can feel exciting and special—cuddling on the couch, sharing popcorn, and choosing a new film together may bring novelty and connection. However, over time, as this routine becomes predictable (perhaps the 50th or 100th movie night), it may lose its magic, feeling more like a habitual background activity rather than a cherished bonding experience. This mirrors how a once thrilling luxury item, after frequent use, provides diminishing marginal utility. The sense of novelty fades, replaced by an expectation or even boredom, unless efforts are made to reintroduce variety or novelty. Ever wonder why people all over the world love vacations?
Here are some expanded examples illustrating the idea of what a utility function represents and how individuals derive varying degrees of satisfaction from different combinations of goods, services, and personal experiences:
1. Consumer Goods and Services
A person might enjoy coffee and pastries for breakfast. Their utility function could reflect how much satisfaction they get from different combinations—maybe they highly value coffee but only moderately enjoy pastries. For example:
1 coffee + 1 pastry → High satisfaction
2 coffees + 0 pastries → Moderate satisfaction
0 coffees + 2 pastries → Lower satisfaction
Someone else might not like coffee at all and would derive more utility from a smoothie and a bagel instead.
2. Friendship and Social Interactions
An extrovert may derive high utility from spending time with large groups of friends at social events.
A more introverted person may find the greatest satisfaction in one-on-one deep conversations rather than large gatherings.
Someone’s utility function might be structured like:
3 hours of socializing at a party → Moderate utility
2 hours of deep conversation with a close friend → High utility
A full weekend alone with books → Very high or very low utility, depending on personality
3. Music and Entertainment
A music lover may gain high satisfaction from listening to jazz while working, while another person might prefer silence or classical music.
Their utility function could capture different preferences:
1 hour of jazz + 1 hour of classical → Medium utility
2 hours of heavy metal → Low or negative utility (if they dislike it)
1 hour of their favorite artist’s live performance → Maximum utility!
4. Work-Life Balance
Some individuals prefer working long hours because they derive satisfaction from career growth and achievement.
Others might gain more utility from leisure time and family interactions.
Example:
50 hours of work + 10 hours of leisure → High utility for a workaholic
30 hours of work + 30 hours of leisure → High utility for a family-oriented person
5. Food Preferences
A vegetarian and a meat-eater have vastly different utility functions for meals.
A vegetarian might derive high utility satisfaction from a dish rich in vegetables, grains, and plant-based proteins and no satisfaction from chicken and steak.
A steak lover, on the other hand, might feel low utility from a salad but high utility from a steak dinner.
Hiking in the woods
3-hour group hike with friends → Moderate utility (Enjoys nature and company, but might prefer a different balance of socializing and solitude)
2-hour solo hike in a peaceful forest → High utility (Deep sense of tranquility and connection with nature)
A full weekend alone in the wilderness → Very high or very low utility, depending on personality (An introvert or nature lover may find it deeply fulfilling, while a highly social person may feel lonely or restless)
Loyalty's In The Office
Completing a major project on time → High utility (Boss is impressed and appreciative)
Consistently meeting deadlines and exceeding expectations → Moderate utility (Boss values reliability but starts seeing it as the norm)
Working overtime every weekend for months → Diminishing utility (Initially earns loyalty, but over time, the boss may take it for granted or even expect it)
This reflects how loyalty dynamics in the work environment aren't always linear—what earns strong loyalty at first may have diminishing effects if it becomes expected behavior and is taken for granted.
These examples demonstrate how individuals attribute varying degrees of satisfaction to different combinations of goods, services, and experiences, shaping unique utility functions that influence their decisions. In relationships, an asymmetry of expectations between partners often leads to differing levels of satisfaction, particularly when one partner's preferences dominate the utility function that drives most choices.
One fundamental aspect of utility functions is that they are often assumed to be subject to diminishing marginal utility. Voila! They get old and routine and boring. This means that as a person consumes more of a good, the additional satisfaction gained from each additional unit tends to decrease. For example, the first marshmallow may bring great joy, but by the time the boy reaches the tenth or eleventh marshmallow, the additional pleasure gained is considerably less. That is diminishing marginal utility. The saying "familiarity breeds contempt" suggests that as individuals become more acquainted with something, they may lose respect or admiration for it. This concept can be applied to various contexts, from personal relationships to consumer behavior.
Understanding the relationship between utility functions and the effects of familiarity has significant implications for personal relationships, professional business relationships, marketers' relationships with their loyal consumers, and policymakers' relationships with their electorates. Each entity must navigate the delicate balance between maintaining an exclusive image and ensuring sustained novelty. If a product, for example, becomes too familiar, it risks losing its perceived value, prompting brands to innovate or reposition their offerings. Have you ever wondered why there are so many flavors of the same potato chip from the same company? Or ice cream flavors from the same ice cream company? Or a new fear-intensive story every day on your news feed?
Understanding the balance between comfort and novelty is essential in personal relationships, just as it is in business, marketing, and politics. The more familiar we become with someone—whether a romantic partner, friend, or family member—the more we appreciate their presence. But at the same time, without new experiences, conversations, or shared adventures, even the strongest relationships can feel stagnant.
Sustaining novelty in a relationship is like keeping the spark alive in a long-term romance. If a couple always follows the same routine—eating at the same restaurant, watching the same movies, or discussing the same topics—the excitement may fade. This is why couples plan surprise date nights, take up new hobbies together, or travel to new places. These efforts keep the relationship engaging and prevent it from becoming too predictable.
Similarly, in friendships, introducing fresh elements—like trying a new activity together or meeting new people—prevents the connection from feeling stale. Just as brands release new flavors of chips or ice cream to keep consumers interested, relationships thrive when they balance familiarity with fresh experiences. Whether in love, friendship, or professional dynamics, the key to long-term fulfillment lies in maintaining that careful balance between comfort and excitement.
Which then raises the big “elephant in the room” question: when scarcity becomes a global reality, and the epoch of abundance becomes a faint silhouette in our rearview mirrors, and inflation runs amok beyond the controls of the "wise" policymakers, and catastrophic system failures proliferate in "cascades" and empathy morphs into apathy, will altruism prevail among humans?
Think about it!