Diminishing Marginal Utility as the Rationale for Consumption Smoothing
The preference for stable consumption stems from the principle of diminishing marginal utility. This concept suggests that as a person's consumption increases, the satisfaction gained from each additional unit decreases. For instance, the enjoyment from the first serving of a meal is typically greater than that from the third. Consequently, individuals generally prefer a steady level of consumption to avoid periods of low utility (from having too little) and periods of less efficient utility gain (from having too much).
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