The Pie is a Lie: ➎ Microeconomics

Microeconomics has a reputation problem. People assume it's about money, markets, and math. The first microeconomics book I picked up had money and complicated graphs on the cover. But at its core, microeconomics is a theory of choice—and every conversation is built on choices.

Before we can talk about why focusing on "winning" a discussion is usually a mistake, we need some conceptual tools. Microeconomics provides them.

Consider a flea market.

This is not unusual. Every choice is a trade and every trade is a choice, uh, maybe two choices; it takes consensus to trade. In the above tale, both were winners.

Both Kofi and Markus said, "Thank you!" In examining the story, we don't really know who said it first. And it doesn't matter!

These kinds of choices apply to fruitful dialog.

Everything is a Trade

Here's the fundamental insight: every choice is a trade. When you choose to speak, you trade silence. (Maybe a few minutes in front of the TV.) When you choose one argument, you trade the time you could spend on another. When you choose to listen, you trade the chance to interrupt.

Economists call the value of the next-best alternative the opportunity cost. It's invisible but real. In dialogue, opportunity costs are everywhere:

• The question you didn't ask because you were formulating your rebuttal
• The nuance you didn't explore because you were steering toward your conclusion
• The relationship you didn't build because you were busy being right

Most people enter conversations without thinking about opportunity costs at all. They optimize for one thing—usually making their point—without recognizing what they're giving up.

So, I ask you this: What are you really giving up when you ask your sister about her feelings about mom getting a new dog? It might be a few moments of silence after a noisy gathering. It might be a few minutes of that new exciting boiling-water game. Or maybe an hour of low-anxiety resting. Or whatever. When I am honest with myself, I realize I am making an investment when I am opening up dialogue. It costs. However, I think we will see that it is a good investment. The cost is less than we thought and the return is greater than we thought.

The Magic of Voluntary Exchange

Trade isn't just sacrifice. When two people trade voluntarily, both typically gain. You have apples, I have oranges, we both prefer variety—after trading, we're both better off. No new fruit was created, but value was created.

Dialogue works the same way. You have a perspective I lack. I have information you need. Through exchange, we both end up richer than we started. This is the latest crack in the apple pie metaphor: the pie isn't fixed. Exchange itself generates value.

But here's where dialogue gets interesting. With fruit, the trade is zero-sum in quantity—my apple becomes yours. With ideas, the trade is non-zero-sum in a more radical way: I can give you my perspective and still keep it. We both walk away with more than we started with.

Diminishing Returns (and When They Don't Diminish)

One of microeconomics' most reliable patterns is diminishing marginal returns. The first huge slice of apple pie is glorious. The third is fine. The sixth is a punishment.

This pattern shows up almost everywhere—except when it doesn't.

In the early stages of many processes, returns actually increase. The first hour of learning piano is frustrating and produces little music. But that hour makes the second hour more productive, which makes the third hour more productive still. Economists call this the region of increasing returns.

Dialogue has this structure. The first few exchanges in a real conversation—where you're establishing trust, clarifying terms, mapping the actual disagreement—often feel unproductive. You're not "getting anywhere." But this phase is precisely what makes later exchanges valuable. You're building the infrastructure that lets ideas actually travel between minds.

Many people bail out during this phase. They want to skip to the "productive" part where points are scored. But doing so is like complaining that the foundation of a house isn't livable. The foundation isn't the point—it's what makes the point possible.

When I make this investment in fruitful dialogue, part of the return is hope and opportunity

There's a further wrinkle. In some domains, increasing returns never stop. Network effects, compounding knowledge, relationship depth—these can exhibit accelerating returns over long periods. A conversation that builds genuine mutual understanding might be one of these. The more you understand someone, the more efficiently you can understand them further. The trust compounds.

We can see this kind of thing in...

1. Economies of scale
2. Network effects
3. Innovation

Indifference Curves: What Would You Trade?

Economists visualize preferences using indifference curves—lines connecting all the combinations of two goods that make you equally happy. You might be equally satisfied with 3 apples and 2 oranges as with 2 apples and 4 oranges. Both points sit on the same curve.

The slope of this curve reveals something crucial: your marginal rate of substitution—how much of one good you'd give up to get more of another. And this rate changes. When you have lots of apples and few oranges, you'd trade apples easily for oranges. When the ratio reverses, so does your willingness.

Now apply this to dialogue. What would you trade to "win" an argument?

• Would you trade the other person's willingness to engage with you again?
• Would you trade their honest opinion for their performative agreement?
• Would you trade understanding their actual position for the satisfaction of defeating a position they don't hold?

Most people, if asked directly, would say no to all of these. But in practice, these trades happen constantly—just unconsciously. The person who "wins" often walks away with less than they imagine.

Indifference curves also reveal something else: people have different curves. What you'd sacrifice for intellectual victory, another person might sacrifice for relational harmony. Neither is wrong. But failing to recognize the difference leads to conversations where both parties are optimizing for different things, talking past each other while each believes the other is being irrational.

Advanced application

I'd skip this part if I was you. This touches on interesting stuff, but it is unsatisfying.

As we follow along in the first chapters of a microeconomics text, we see we can apply principles to seeking fruitful dialogue. We will get further insights.

However that is limited because of assumptions of enduring diminishing returns or a fixed Edgeworth Box (economics jargon) that ignores when goals change with information or experience (think stairways at Hogwarts). Wonderful things happen. Modeling seems to support this. However, computer simulations by Mouth Fruit show that interesting shapes of preference can lead to local maxima or other strange situations. This ground seems to be relatively un-tread.

Here is a little of what can be said from the results.

Until we dig deep into this topic in this blog (and we might), avoid any pitfalls in the wonderful world of non-diminishing returns:

1. Treat agreement as a hypothesis, not a reward.
2. Maintain peripheral vision on unchosen paths in conversation. (Oh, no, this has a cognitive load, be ready.)
3. Hold commitments lightly.
4. Seek the load-bearing disagreement. (How do you balance this when Mouth Fruit comes back later encouraging you to find those regions of agreement? Hint: don't stop.)
5. Distinguish comfort from real progress.
6. "Uh, what's the question again?"

Dialogue is dance.

And another thing... Often in this environment we do find eventual diminishing returns. We have a wonderful time and then bleh; can we talk about something else? Sometimes this means that we have set up fences. It is time to move outside the fence. Again.

It seems we are seeing agreement between microeconomics and psychology. That makes sense. We might have many ways we seek the truth. If we are seeking the truth in multiple ways, we are seeking reality.

Readying for the next post

So here's what microeconomics teaches us:

1. Every conversational move has an opportunity cost. Choosing to argue is choosing not to inquire.
2. Exchange creates value beyond what existed before. Dialogue isn't dividing a pie; it's potentially baking a bigger one.
3. Early investment in understanding may have increasing returns. The "unproductive" phase of building shared context can be the most valuable part.
4. Your willingness to trade reveals your actual priorities. And those priorities might not be what you think they are.

None of this tells you what to do in a conversation. But it reframes what a conversation is. It's not a battlefield with a winner and loser. It's not a negotiation over a fixed resource. It's an exchange that can leave everyone richer—if you stop optimizing for victory.

Next in this series, we'll look at what happens when people treat dialogue as a game to win, and why that strategy defeats itself.

Mouth Fruit is a blog about fruitful dialogue. If you're reading this, you probably care about talking with people in ways that actually work.

The Cartoon Introduction to Economics — VOLUME ONE: MICROECONOMICS

by Yoram Bauman and illustrator Grady Klein

This introduction to microeconomics looks promising. It is ALL pictures. Well, almost. If you want color, order a set of color pencils with it. You can check out the first two pages. I haven't read it through, but he starts off with a good introduction to the Optimizing Individual. (Notice that Mouth Fruit starts out with choice.)

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Price Theory: An Intermediate Text

by David D. Friedman (with forward by Gary Becker)

This microeconomics text emphasizes the view of price theory enlightened by exploring non-monetary examples, including "love, marriage, crime, and politics" (Gary Becker). This text is described as intermediate, yet it does start at the beginning and has good examples. It is intermediate in the sense of teaching to college undergrads. It does not have the pictures some of us want in learning. I was able to handle this.

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