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A Rehabilitation of the Law of Diminishing Marginal Utility: An Ordinal Marginal Utility Approach

Author

Listed:
  • Lin Chung-Cheng

    (Institute of Economics, Academia Sinica, Taipei, 115, Taiwan, ROC)

  • Peng Shi-Shu

    (Department of Public Finance, National Chengchi University, Taipei, 116, Taiwan)

Abstract

The model in which an individual maximizes his ordinal or cardinal total utility has long been the paradigm of individual choice theory. However, the two mainstream utility theories, the ordinal and cardinal total utility theories, have caused a dilemma, i.e. one has to sacrifice one of the following two: the good property of utility ordinality, or common-sense notions such as the law of diminishing marginal utility. Ordinal theory keeps the former but gives up the latter, while cardinal theory keeps the latter but sacrifices the former. We propose an ordinal marginal utility approach aiming to solve this dilemma by changing the very first assumption regarding individual choice.

Suggested Citation

  • Lin Chung-Cheng & Peng Shi-Shu, 2022. "A Rehabilitation of the Law of Diminishing Marginal Utility: An Ordinal Marginal Utility Approach," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(2), pages 453-481, June.
    • Handle: RePEc:bpj:bejtec:v:22:y:2022:i:2:p:453-481:n:3
    DOI: 10.1515/bejte-2020-0158
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    More about this item

    Keywords

    ordinal utility; cardinal utility; ordinal marginal utility theory; D01; D11;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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