Question

The introduction of marginal utility is credited typically to its near-simultaneous development in the latter part of the 19^TH century by Stanley Jevons, Leon Walras, and Carl Menger. Like many important developments there are, with hindsight, predecessors. One of the more intriguing predecessors was a member of a distinguished family of mathematicians who developed a theory of diminishing marginal returns to explain the St. Petersburg Paradox - the seemingly irrational refusal of gamblers to bet in accordance with the game’s infinite expected value.

Please choose one of the following:

Spontaneous order

John Kenneth Galbraith

Daniel Bernoulli

Cardinal utility

Comparative advantage

Tableau Économique

Consumers sovereignty

Thomas Carlyle

Charles Dickens

Daniel Bernoulli

Biological evolution

Adam Ferguson

Joseph Schumpeter

Neoclassical economics

Economic man

Ben Franklin

Jonathan Swift

Adam Smith

Stanley Jevons

Jeremy Bentham

Ronald Coase

Alchian and Demsetz

Answer 1

Daniel Bernoulli belonged to a family of distinguished mathematicians. He was born in Groningen in the Netherlands in a family originally from Antwerp. Bernoulli offered a solution to the St. Petersburg paradoxas the basis of the economic theory of risk aversion, risk premium, and utility. Bernoulli often noticed that when making decisions that involved some uncertainty, people did not always try to maximize their possible monetary gain, but rather tried to maximize "utility", an economic term encompassing their personal satisfaction and benefit. Bernoulli realized that for humans, there is a direct relationship between money gained and utility, but that it diminishes as the money gained increases. For example, to a person whose income is $10,000 per year, an additional $100 in income will provide more utility than it would to a person whose income is $50,000 per year.