The Law of Diminishing Returns Proves Why More Money Doesn't Make You More Happy

The Law of Diminishing Returns says that beyond some point, each additional unit of some input (money) yields smaller and smaller increases in outputs (happiness). Here's why.

What's the difference between a sub-$1000 car and a car that costs about $20,000? Quite a bit.

A 1990 Nissan Sentra, $900.
That's a pretty lousy car. It might get you around town, but it's a good bet that it's falling apart and will need lots of work. You won't be picking up any hotties in that car, either. Now the $20,000 car.

A 2002 Corvette for $20,995.
Now that's the car to pick up chicks with. Man, you're a player if you're riding around in that rig. The happiness difference between a 1990 Sentra and a 2002 Corvette is pretty substantial.

Now, let's move up the scale. First, a $60,000 car.

A totally restored 1973 Corvette for $60,000.
In our first example, we had a $20,000 difference between cars, so let's keep it at that and find an $80,000 car to compare with that '73 Detroit iron.

A 2009 Nissan GT R with 100 miles for $84,000.
So how much happier would you be driving around in the GT R vs. the '73 Corvette? Not much. Certainly not nearly the difference you'd feel between the '90 Sentra and the '02 Corvette.

And that, dear readers, is why money, beyond the point where you can live without substantial worries, does not make you happier.