The Paradox of Choice: Why More Is Less

by Barry Schwartz

To figure out why prospect theory gives us this curve rather than a straight line, let’s look at the two halves of the graph separately. The top, right portion of the graph depicts responses to positive events. The thing to notice about this curve is that it’s steepness decreases as it moves further to the right. Thus, an objective gain of say $100 may give 10 units of subjective satisfaction, but a gain of $200 won’t give 20 units of satisfaction. It will give, say, 18 units. As the magnitude of the gain increases, the amount of additional satisfaction people get out of each additional unit decreases. The shape of this curve conforms to what economists have long talked about as the “law of diminishing marginal utility.”