Jevons Paradox: When AI Gets Cheaper, Do We Just Want More?

The same economic principle that transformed coal, electricity, and computing is coming for AI

“It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.”?? William Stanley Jevons?

What is Jevons Paradox?

Imagine you buy a more fuel-efficient car. You'd think you'd use less gas, right? Well, sometimes the opposite happens - because the car is cheaper to drive, you might take more road trips and actually end up using more gas overall! That's essentially what Jevons paradox is: when something becomes more efficient and cheaper to use, people often end up using more of it, not less.

This idea comes from a British economist named William Stanley Jevons, who noticed in 1865 that when steam engines became more efficient at using coal, factories actually started using more coal, not less.

How Does This Apply to AI in 2025?

The AI world got shaken up when a Chinese company called DeepSeek recently showed they could create powerful AI systems for much less money than companies like OpenAI. At first, this scared investors, who thought it might hurt big tech companies. But then something interesting happened - people started thinking about Jevons paradox.

Microsoft's CEO Satya Nadella pointed out that making AI cheaper and more efficient might actually increase the overall demand for AI services. Think about it like this: when computers became cheaper and more efficient, we didn't end up using fewer computers - instead, everyone got one and started using them more than ever.

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Based a One World Trade Center, Antoinette Rodriguez, MBA, delivers actionable insights at the intersection of AI and traditional finance through AI & Wall Street Decoded. Drawing from two decades of Wall Street experience and her role as Chairwoman of Financial Advisor Magazine's Invest In Women initiative, Rodriguez provides thought leadership through her weekly newsletter reaching thousands globally, commissioned white papers, and speaking engagements across the Americas and Europe.

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