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I came across this idea while looking to buy a house and I wondered if there was a term for it. The initial purchase options have a linear cost to value relationship. However, I'm tempted to make a larger purchase than planned because the additional value is proportionately much higher.

Simple Example:

  • Option 1: Cost = 3, Value = 3
  • Option 2: Cost = 5, Value = 5
  • Option 3: Cost = 7, Value = 10
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2 Answers 2

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I can't see anything but utility maximization here. With a quasilinear utility function, u = v - c, the first two options yield $u=0$ while the third one yields $u=3$.

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From a Production Theory standpoint, I would argue that you have a convex "production function" (input = Cost, output = Value). In other words, the house purchase has increasing returns to scale.

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