Question

Research by economists Betsey Stevenson and Justin Wolfers finds that the marginal happiness of money is positive (though sharply diminishing) at all levels of income.

This means that all things equal, more money would make the average person happier (though less and less so when she becomes richer). Writing in The Atlantic, Derek Thompson concludes: “Money Buys Happiness and You Can Never Have Too Much.”

But it would be a mistake to infer that the average person would be happier if she made more money. What is overlooked here?

Answer 1

An average person would always be happier with more money as the marginal happiness of money is always positive as proven by Stevenson and Wolfers. What is confused here with is the rate of marginal happiness or second derivative of function of happiness with money as an argument (more technically). That second derivative is decreasing in nature, so even if you are richer, an extra buck will always give you more happiness but this happiness would be lesser than the happiness you must have got from the last buck i.e if a person has $19 and he get an extra $1 this will give him more happiness but less than what he derived from the $1 when he had $18 in hand. So, more money would always have a positive happiness quoteint irrespective of how much money you had, only the rate of happiness is decreasing