Fungible goods are mutually interchangeable in that, in principle, you could swap in any unit for any other unit of the same type or kind and it would be equivalent. Money is a classic fungible good. A $10 bill is equivalent to any other $10 bill, so if you were to borrow $10 from someone they wouldn't care or expect to get the same $10 bill back.

Non-fungible goods are unique and not mutually interchangeable. Each house, even cookie-cutter houses, is in a unique location, with different neighbours, quirks, and history. Having a print of the Mona Lisa on your wall is not the same as having the original from the Louvre. And swapping people between teams at work, even people with similar experience, will still result in different outcomes.

A nice thought experiment to distinguish fungible and non-fungible goods is to ask if you were to borrow one, would it make a difference if you returned a different one? So if you were to borrow my car, you could return it to me with a different tank of fuel (a fungible good) and it wouldn't make any difference to me. But if you were to return a different used car (a non-fungible good) that would be rather odd.

In case you've heard of NFTs (Non-Fungible Tokens) and would like to understand their flaws and promise better I recommend the NFT Freakonomics episode of the 3-part series What can Blockchain do for you?

Fungible - non-fungible

Coined after the French philosopher Denis Diderot’s remarkably titled essay “Regrets on Parting with My Old Dressing Gown”.

The gist of the effect is that we generally surround ourselves with objects that fit our current sense of identity. If we get something that doesn’t fit that identity, we may find ourselves replacing the rest to match the new identity.

Poor Diderot was given a fancy new dressing gown, but he ended up replacing most of his possessions and ultimately living in poverty, to paraphrase a little.

The Diderot Effect was introduced by Grant McCracken, and I learned about it, once again, from Atomic Habits. Diderot also played a key role in the development of the encyclopedia as I learned from Seth Godin’s podcast, Akimbo.

Also see: The Diderot effect, The Streisand effect

The Diderot Effect

Zone of Possible Agreement

ISAs are like buckets

Buy experiences instead of things. Help others instead of yourself. Buy many small pleasures instead of a few big ones. Drawn directly from the excellently entitled paper:

If money doesn’t make you happy then you probably aren’t spending it right. Dunn, Gilbert, Wilson, 2011.

Get my new weekly sketch in your inbox

Category: money