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A Test of Diminishing Marginal Value

Author

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  • JOHN HOROWITZ
  • J. LIST
  • K. E. McCONNELL

Abstract

The notion of diminishing marginal value had a profound impact on the development of neoclassical theory. Early neoclassical scholars had difficulty convincing contemporaries of the new paradigm's value until political economists used the critical assumption of diminishing marginal value to link utility and demand. While diminishing marginal value remains a key component of modern economic intuition, there is little direct verification of this behavioural property. This paper reports experiments on a myriad of subject pools to examine behaviour in both price and exchange settings. We report results from nearly 900 subjects across 19 treatments and find strong evidence of diminishing marginal value.

Suggested Citation

  • JOHN HOROWITZ & J. LIST & K. E. McCONNELL, 2007. "A Test of Diminishing Marginal Value," Economica, London School of Economics and Political Science, vol. 74(296), pages 650-663, November.
    • Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:650-663
    DOI: 10.1111/j.1468-0335.2006.00565.x
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    Cited by:

    1. Jon X. Eguia & Dimitrios Xefteris, 2024. "Can growth heal the political divide?," University of Cyprus Working Papers in Economics 03-2024, University of Cyprus Department of Economics.
    2. Vallstrom, Daniel, 2025. "Cooperative Evolutionary Pressure and Diminishing Returns Might Explain the Fermi Paradox: On What Super-AIs Are Like," OSF Preprints bq438_v3, Center for Open Science.
    3. Oswald, Andrew J., 2008. "On the curvature of the reporting function from objective reality to subjective feelings," Economics Letters, Elsevier, vol. 100(3), pages 369-372, September.
    4. Biel, Anders & Johansson-Stenman, Olof & Nilsson, Andreas, 2011. "The willingness to pay–willingness to accept gap revisited: The role of emotions and moral satisfaction," Journal of Economic Psychology, Elsevier, vol. 32(6), pages 908-917.
    5. R. Lynn Hannan & Frederick W. Rankin & Kristy L. Towry, 2010. "Flattening the organization: the effect of organizational reporting structure on budgeting effectiveness," Review of Accounting Studies, Springer, vol. 15(3), pages 503-536, September.
    6. Wilfred Amaldoss & Mushegh Harutyunyan, 2023. "Pricing of Vice Goods for Goal-Driven Consumers," Management Science, INFORMS, vol. 69(8), pages 4541-4557, August.
    7. Wilfred Amaldoss & Jinzhao Du & Woochoel Shin, 2021. "Media Platforms’ Content Provision Strategies and Sources of Profits," Marketing Science, INFORMS, vol. 40(3), pages 527-547, May.
    8. John K. Horowitz & Kenneth E. McConnell & James J. Murphy, 2013. "Behavioral foundations of environmental economics and valuation," Chapters, in: John A. List & Michael K. Price (ed.), Handbook on Experimental Economics and the Environment, chapter 4, pages 115-156, Edward Elgar Publishing.
    9. Gouthier, Matthias H.J. & Nennstiel, Carina & Kern, Nora & Wendel, Lars, 2022. "The more the better? Data disclosure between the conflicting priorities of privacy concerns, information sensitivity and personalization in e-commerce," Journal of Business Research, Elsevier, vol. 148(C), pages 174-189.

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