Mar 09

Understanding the Relationship Between Utility, Happiness and Cost

Utility, happiness and cost

Today I want to introduce the concept of utility, and explore how it relates to the central theme of this blog: happiness. In my previous blog post on the marginal utility of money I proposed a money-happiness curve like this one. Generally as we spend additional money to become happier, there is usually a diminishing return on our investment.

Money happiness graph

It sure would be nice if happiness could simply be a nice easy graph like this one. It’s such a beautiful smooth curve. And while it is visually appealing, it is unfortunately not reality.


The truth is that while the general idea is correct, the slope of the curve is different for each individual item or service we purchase in our lives. Maybe when they blend together they look something like this, but individually they are all over the place. We cannot assume everything in life will fit this curve.


Additionally, ‘happiness’ is a simplification of what we are measuring. I’m sure a fork, bookcase or car can cause happiness, but I think a more accurate descriptor in these instances is utility.


Utility and happiness are different

An object may bring us both utility and happiness, but usually utility is the primary function and happiness is the secondary function. Think of it like this:

In general, the utility function of an item is fulfilled before its happiness function.


What the heck does that mean?


Most things we have serve a purpose. They do something, or have utility. This is their primary function. It is unlikely an item with no utility will bring us happiness. It first has to be useful.


As something becomes fancier and more luxurious, often times the utility does not change much. Only after utility is filled, do we obtain additional happiness. It is not always that simple, but the concept will help you make better decisions.


Let’s use a couple of examples.


This is a fork…and for some reason corn on the cob.

corn fork happy

Who eats corn on the cob with a fork?


Anyways, forks are a pretty mature technology. There is not a whole lot you can do to a fork to make it function better. Forks also have an absurd variability in price from nearly free to hundreds of dollars (I’m excluding collectable forks which may range into the thousands). This is the cost-utility curve of a fork. The dotted line represents maximum utility. Above this line is happiness.

happiness utility curve for a fork


Notice that once we reach a certain price point with a fork, we are hard pressed to squeeze any more happiness out of it. I’m confident I could assemble a perfectly functional set of mismatched forks from garage sales for the small pile of change on my dresser.  They would work just as nicely as a brand new set of elegant sterling silver forks crafted by the finest artisans. They both have the same utility.


As it turns out I did neither. I went middle of the road, somewhere between garage sale fork and Trumpian luxury fork. I have a nicely matched set of inexpensive silverware some kind soul gifted us from our Target wedding registry.


Don’t judge me. I know fork connoisseurs everywhere will be appalled.


But you see, there is no amount of additional ‘fork money’ that could buy me any more utility or happiness when I’m eating my beans and rice.


I’m maxed out.


I am perfectly positioned on the graph. Any more money spent and I would not notice a perceptible improvement in my quality of life. In fact, if I waste that money on a fancier fork there might be something else I could not buy (or would be forced to buy lower quality than I want). This is the essence of opportunity cost by the way.


Now, I would probably be slightly less happy if all my silverware was mismatched or different sizes or not beautiful. The aesthetics of the set table each night as dinner approached would be slightly degraded. It might be slightly disconcerting when the forks fit poorly in the utensil holder because they don’t line up perfectly with each other. Maybe the tines are not lined up and peas more easily fall off when bringing the fork to my mouth.* These are small costs, but they are indeed costs.

Again, don’t judge me.

The bigger question is how did I arrive at this decision? How did I take care of this ‘fork problem’?

It’s simple really.


  • I maximized utility.

  • I optimized happiness.

  • I minimized cost.



I didn’t sit down with excel spreadsheets and graphs for a fork purchase (don’t worry, I won’t judge you if you did). Much of this was processing that went on in the background. I just kind of came to the decision knowing it was somewhere acceptable on the ‘fork-utility-happiness’ graph. As it turns out I am darn good at purchasing silverware.


Example #2: Car


A car is a much more expensive, and complicated product. We want to get this right. The cost to us is greater than if we make a mistake purchasing flatware. Remember the wage slave time-money graph? I’ve placed forks and cars on the graph for your viewing pleasure.


fork car time money graph

If the average price of a fork is $1 (and that may be a little on the high side) and the average new car is $33,560 (probably higher today), I hope you realize where your time and energy should be spent. Understanding utility functions are obviously more important for cars than for forks.


There is a certain minimum price to get a reasonably functioning and reliable car. Let’s say $1000 for sake of argument. I don’t know if this is true or not. The exact numbers don’t really matter so let’s go with it for now.


Below this price level I assume most cars are either so unreliable or require so much money to get into acceptable shape that their utility would be near zero unless it was my only option. But since a $1000 car is the bare minimum of acceptable, and cars do not age like fine wine, soon this car will be of limited utility. Thus items that wear out or depreciate have the additional problem of decreasing utility over time.


Fortunately this was not really an issue with our fork.


I’m fairly confident 10 years from now the value of my fork on the secondary market will be similar to what it is now (just about zero).

Back to the car

So let’s say $5000 is the minimum price for which I think I can get a car that is good enough for my fancy needs. After all, I do take emergency call and I really do need a car that has a reasonable chance to get me to the hospital.


This number will change for you depending on your savings, income, needs, etc. There is no one size fits all utility function. You need to decide for yourself what your curve looks like.


There is also the more complicated question of how this utility function will affect other utility functions. Perhaps you would be fired from your job or lose opportunities if your car broke down several times and you missed work. Maybe the image you project with a $1000 car would affect you negatively (I’m thinking of someone like a realtor that drives people around to look at houses).


If your time is worth $1000/hour you may value a reliable car differently that someone making minimum wage at Burger King. For this CEO type person, always having a very new and reliable car has a very high utility, as missing a couple hours of work would be quite costly.


Older cars may have more or less expensive parts. Insurance and licensing costs will vary. Also one may consider the safety features of a $1000 car. Certainly cutting-edge safety features has some utility.


You get the idea.


I’m sure we can dream up more examples, but in this case one could imagine that buying a slightly newer, nicer or mechanically sound car would rapidly increase utility. You can see how this calculation gets really confusing and complicated very fast. Many people have difficulty making these calculations, including myself.


My car-utility-happiness graph may look something like this:

I put 4 cars on this graph: A $2,000 beater car, a maximum utility car, my car, and a fancy CEO car.


At some point, we arrive at a place where the utility function is satisfied. Let’s say this represents a brand new reliable car with all modern safety features, and which fulfills the lifestyle needs of the buyer (me). For a medium entry level sedan this may be around $16,000. This is the max utility car.


As I go up from this $16,000 level I am not really trying to buy more utility, I am trying to buy happiness. After all, a really nice and fancy car may make me happier. This is what the advertisements imply anyways. The car we drive defines our manliness (or womanliness) right?


There may be a little added utility in additional features, but we are really paying for things like comfort (nicer seats, quieter ride), aesthetics (beautiful materials, better sound and acoustics), our image, ego, social proof, etc. For a few people these may have utility, but for the vast majority of us I would doubt this.


I’m not really missing out on opportunities, career or otherwise, because I don’t drive a brand new high end luxury car instead of a Toyota, and you probably are not either.


I don’t know if you have been in a high end luxury car, but boy are they nice! From my limited experience once you get in the $70k-$80k range there is not much more you can buy that will make the car ‘better’ from a practical ‘get from point A to point B in safety and comfort’ standpoint.


Most people with reasonably high incomes buy a car somewhere in the middle. I did. The average new car purchase price is somewhere in the low 30k range. In retrospect my decision was not entirely rational. Although I maximized utility, I probably crept too far up the cost happiness curve. Notice the rather flat slope of the curve from 16k to 27k. The Shaded area represents additional happiness. I didn’t get much additional happiness for my 11k. Sometimes I wonder how that money may have been better allocated.


It wasn’t a crazy purchase. I did temporarily get a little more happiness. I certainly could have done much worse, but I’ve built systems into my life where mistakes like this don’t really matter in the grand scheme of things. This article is for people who do not have that luxury, which, as far as I can tell, is almost everyone I know.


What is the point of this exercise?

If you embrace the principles I discuss on this blog, you know that beyond a certain point we cannot buy happiness in the long run. When we try it is usually fleeting. Often times it is pleasure, not really happiness. When we are on a reasonable part of the graph we don’t move the needle much by spending more.


I propose the best way to maximize freedom, time, and happiness is by using money to first buy maximum utility before trying to buy happiness. When we buy adequate utility in our life, we create the conditions for happiness to emerge.


If you are unhappy with your job, burned out or depressed, you cannot buy your way out of it. It is not really possible. I’ve seen many people try, and very few succeed in the long run. We adapt to whatever improvements we make and it becomes our new normal. We actually may weaken our ability to be happy with less and we may come to believe our happiness is dependent on consumption. This is a dangerous mindset.


My new car is fine, but I’m used to it now. It doesn’t really bring me any happiness. It certainly doesn’t make me happier than spending time with my family, going for a walk, or enjoying a good book from the library.


A final example

Recently we replaced the carpet in our house and completely repainted the interior. It looks nice, it really does, but I am no happier. I was for a short while, but now it is in the background. I’m not saying don’t make your house beautiful, but understand the marginal utility of doing so. Understand the opportunity cost of not being able to spend that money on something else.


This stuff won’t really make you any happier. I know this has to be true because I’ve been in houses with much nicer stuff in them than mine, yet the inhabitants were not satisfied. I have also been in houses with things that are of much lower quality, yet the people are perfectly happy, maybe more satisfied than I am with all of my fanciness.


We can train ourselves to be happy with whatever we have.


Money is most efficiently spent buying utility.


Money is inefficiently spent buying happiness.


The curve gets pretty flat trading money for happiness in many instances. If you can recognize this your wasteful spending will plummet.


Now I know some people are reading this right now and don’t believe me. They are thinking of all the things that are luxurious that bring them happiness. And they are right. The curve often does keep going up. But if that is the biggest source for increasing happiness in your life, maybe there is another problem. Maybe the things in your life that can truly bring unlimited happiness are missing. Things like meaningful relationships, love, affection, time, beauty of nature and freedom. These things can be nearly free.


This is where we should be looking for happiness.Happiness is more a skill and mindset. Happiness is acceptance and gratitude. It won’t be found by upgrading from an iPhone 6 to an iPhone 7. It won’t be found in a fancier car or better fork.


Buy utility.


Buy freedom.


Spend what’s left on happiness.

*I guess I could always use a spoon in this case.


3 pings

Skip to comment form

  1. I use a knife to cut the corn off the cob and then eat it with a fork. I’m happy with that.

    We recently tried to convince our son of the whole care thing. He didn’t believe me. He may in a few years when something else has to be delayed instead.

    I will spend extra $ on good shoes (and socks) because I run a lot. So we probably all have something that we place more value on. Just make sure your loved ones are allowed to place value in something, too and not necessarily just those things you value. Note, I’m using “you” in the general sense, not “you” as in you.

    These days I do find myself trying to do the math. Is spending this much now, really going to make me more happy or would I be better off saving for something else down the road.

    cd :O)

    1. Good point Chris. Since everyone values things differently things can get ugly if there are big differences. Even when people have a general agreement on philosophy, often there is a wide rage of differences in the details. We have to be aware of this. My wife and I for instance agree completely on the utility of running shoes, but are pretty far apart on the minimum utility of a hand towel.

      For obvious reasons Mrs. Happy Philosopher is in charge of all towel purchases in the household 😉

  2. There’s a corollary idea that I often think about, which is “not wanting it is as good as having it.” What I think this means is that if you don’t even want the fancy car, then you feel just as “happy” as the person who has it. Now can you please put that on a graph?

    1. I think you have quite nicely summed up Stoicism.

      Happiness = reality – expectations?

      These types of articles are fun. I will keep drawing graphs as long as people keep reading 🙂

      • Radonculous on April 9, 2017 at 6:36 am
      • Reply

      I agree with that quote. Before I really understood the marginal utility of money (I always felt it was there but didnt practice it) I wanted the fancy car for whatever reason. Now, I drive a 3 year old $24K that suited to my climate and commute time and I look at fancy cars and get excited that I dont need that anymore. The more frugal I am and feel, the happier I am. Its like I get it and other people dont. I’d happily educate them, but most arent receptive (yet).
      Great Post!

  3. Just like your original comment even with the car though utility differs a bit by person. Take me, I’m a car nut. I enjoy driving, and at one point I even enjoyed taking my car on a race track or auto cross course. As such my marginal utility slope goes higher at least until I find a car I really enjoy driving. But still like your example there is a limit. I bought a new corvette ten years ago. It was probably a little above my curve but I still own it. But the interesting thing is even as a car fanatic, the marginal utility of trading that corvette in on say a new corvette or even something more expensive won’t bring me any more happiness. As such I feel no drive to “upgrade”. IE even at a higher level it still exists, and the key to being happier is figuring out where that slope levels out.

    1. Exactly, what fulfills my definition of utility may be different from someone else. Looking back on it, all of my auto purchases have been above the line of minimum utility. If we only went to that line with every purchase I think most of us would want more. Nicer stuff does make us happy, but it is this dangerous slippery slope that gets most of us into trouble. Most of the people in credit card debt and trapped in their jobs didn’t get there because they bought too much utility.

  4. Aside from being completely insulted that you’ve plotted our beloved minivan below the $2k beater car, I really like this way of thinking. Of course, I’d love to cruise around in an $80k sports car, but the $78k I’ve saved by not doing that has far greater utility for me. I’d also guess that $78k of investments (which buy us perpetual cash flow and piece of financial freedom) generate a lot more happiness.

    A friend was recently telling me that she was embracing a minimalist approach to her house and assessing every possession with a question of, “Does this item bring joy into my life?” I laughed and said that that question might not be very helpful when you’re looking at a lot of basic housewares. My forks or my ironing board don’t exactly inspire joy and happiness, but I wouldn’t want to give them up. Utility is a great way to think about them.

    1. Lol! Sorry, I did not intend to disparage anyone’s automobile choices 🙂

      It is a good point though, we will all have different ideas of what minimum utility means to us depending on our priorities, resources, knowledge, skills, etc. I am rather jealous of your 2k van so take it as a compliment!

      I actually think utility can bring joy if we imagine it’s absence. Think of life without those basic housewares and add them back in. If I had no eating utensils a simple fork and plate would bring me great joy!

      1. Fair point. I suppose acquiring my first utensils would be a joyous occasion had I been eating with my hands before!

  5. Nice article and perspective and thanks for writing it. I’m not sure I understand or agree though. You describe utility as what sounds like the minimum needed to do the job. But the graphs describe an optimum utility as quite a bit above the minimum. The shape of that curve will vary a lot based on personal preferences and I suspect part of the challenge is when the curve “feels” like it keeps steeply rising instead of leveling off.

    Understanding what makes you truly happy helps you mentally map these utility curves and realize where the curve flattens out for you personally. And this will vary by person and item. For example, I have a 15 year old vehicle that I love and hope to drive for many more years. But I also have a very expensive Japanese chef knife that I love to use and keep sharp. A much cheaper knife could do the job of food preparation but using a super sharp, well-balanced, high-quality knife does give me a lot more happiness when I’m making a meal for my family. I really don’t feel like I wasted any money on this particular purchase even though others would say I paid a ridiculous amount. And this is one example of many. It’s all about determining what makes you happy so your graphs could look very different for different people and different material things.

    To each his/her own as far as I’m concerned. Just be sure to know yourself well and prioritize your spending based on what gives you the most happiness. It’s extremely easy to waste money on the wrong things if you don’t know yourself really well. But it’s also pretty common to miss out on things that could bring you joy if you’re being too rational or money-focused.

    1. I think you summarized things quite nicely. Perhaps I did a poor job of articulating, but you are right, everyone will have their own utility and happiness graphs. We will all draw them with slightly different slopes, and different definitions of what we feel utility and happiness represent.

      I think the problem lies in when we have filled the maximum utility (for us) and we try and spend more and more thinking it will bring us a lot of happiness. It will bring us some, but for most items the utility is what matters most.

      Using your knife example, buying fancier knives WILL increase their utility up to a point. But at some level the knife is good enough (for you). If you are a chef, obviously the better knives have more utility to you than me, who will pick up one every day or two to cut a piece of fruit in half. You can appreciate the additional utility of the knife, whereas I may spend this money on a nicer guitar or bike.

      At some point whatever we are buying is good enough for our purposes. We can always spend more, I just think we should be mindful of what we are buying. I think a good rule of thumb is spend liberally on utility, but be wary of trying to buy happiness. Know when that curve states to flatten out and it is no longer a good trade.

      1. Completely agree. It’s an important (and tough) concept to fully understand because it depends so much on understanding yourself well. It’s very much aligned with “conscious” spending. Thanks again for writing such a nice post on this important topic!

  6. Good god, you’re smart.

    I don’t know how you take concepts that are so hard to articulate, then manage to do so in such a simple, beautiful way.

    I tip my hat to you once again.

    1. I’m humbled Joe, thank you.

      I don’t know if I’m really all that smart. I just decided to turn a bug (my inability to stop thinking about things) into a feature (might as well write this crap down and see if anyone else can find value in it).

      It turns out this stuff (thinking and writing) is really fun for me. When things are fun we tend to get better at them just by inertia taking us to where we need to be.

    • Christy Bayes on March 11, 2017 at 8:39 am
    • Reply

    Love this! My happiness level is higher with the 2000 budget car because it allows for more freedom. How beautifully you described utility! Two years ago I traveled to Honduras on a medical mission trip. The people there don’t even have the budget car, they are lucky to have a bike for transportation. Yet their happiness level appears to be higher than most of us here in the US! I learned a lot from that trip about contentment.

    1. Thank you Christy. Your comment made me think of a movie I saw a while ago called Happy.

      Maybe we should all go to countries much poorer than ours when we draw our graphs 🙂

  7. I bought a small new car outright around 7 yrs ago, and I have to say that it still makes me happy when I walk into the work carpark and see it amongst all of the fancy cars – happy that I made that choice and am still getting to drive a nice-enough car 7 years later.

    1. 7 year old well maintained car is a pretty great place to be 🙂

  8. Interesting that you show the “utility” value rising forever.
    I think you’ve mis-drawn the far-right end, which hides your insight that best spending isn’t max spending (and vice versa).

    The CEO car, for instance, requires more careful and secure parking, attracts more attention from police and rabble, has more expensive replacement parts and labor, and is overall more of a maintenance-drag. For me, that gives quite a hit on utility — the “finer” car grabs focus away from what I want to focus on.

    My mind thus jumps to the equivalent graph from “Your Money or Your Life”, of fulfillment versus spending.

    1. Actually the dotted line represents utility, above the line is happiness. So I hypothesize that for me an 80k car will make me slightly happier than a 16k car. The utility will be just about the same though, as both are at or above the dotted line. I could be wrong. I’m just guessing since I’ve never actually owned that fancy of a car.

      You observations are correct though, there may be some negatives of owning a car like that. In my first graph I illustrate this concept with the dotted lines that go both up and down.

      Also I am a really bad artist, so the lines are neither straight nor to scale 🙂

  9. I must admit that my forks and silverware are all mismatched and totally bought that way (thanks wedding registry!). And the nicer set is totally thrown in with the dollar store ones we had bought years ago. Each day, I randomly grab either a nice one or a cheap one, whichever one happens to be on top. But I can honestly say that my happiness level doesn’t change on that day based on which fork or spoon I happen to grab. Thanks for being our topic of conversation last night at the dinner table.

    1. I know I’ve made it when I’m the topic of WOW dinner conversations 😉

    • Jacq on March 29, 2017 at 9:47 am
    • Reply

    My car still makes me very happy. Like another poster said, seeing it in the garage or parking lot makes me smile. But the insides are good too, all the times it’s gotten me out of the way of someone not paying attention, all the places it’s taken me. 🙂 The quiet & comfortable ride parts are important to me, I find too much white noise wears on my patience & I don’t like having to blast my music to drown out the road.
    I like this idea of utility. Like you said about the carpet, it becomes background functionality, but a base level of contentment, vs discontent (poorly pronged forks), I think gets us closer to recognizing other joys and gratitude… leading to happiness.

    1. The thing I love most about my new car is how much quieter it is. 15 year old Honda Civics are very loud creatures 🙂

  10. I love the graphs! Often we think about happiness in terms of things we want to add to our lives. However, I found that by getting rid of my car (about 3 years ago), I actually boosted my happiness.

    I had a 2005 Prius that I was very happy with, but once I moved somewhere that allowed me to bike, walk, or take the bus, my car became more of a hassle. That’s because the last two years I owned my car I was using it about once every month or two. But I still was paying for insurance, dealing with the battery dying from lack of use in the winter, switching out summer and winter tires (I live in northern Minnesota), etc. So now I love having zero car responsibilities (and costs) and instead enjoy using active transportation that gets me outside and keeps me healthy.

    Your post does have me thinking about what my utility graph would look like for our house… Thanks!

    1. Thank you for reading. You bring up a good point about the marginal utility changing depending on how useful it is to us now vs. how useful it was in the past. Just because something has utility in general doesn’t mean it has utility for us. The deeper I dig, the more I realize many of my possessions really don’t have much utility at all.

  11. Fork Utility….ha ha.

    For the record, I once bought a box of cups from a garage sale. It seemed like a good idea. They were a steal. Then I got home and had a box of glasses I had to make room for. My home at the time was 800 sqft. The happiness for the cheap cups went way down. I should have bought the super hero glasses I wanted from Target.

    It is surprising to me how people do not appreciate that the excitement of a purchase diminishes over time. That expensive car is awesome for a few weeks and maybe a few months, but then it is a car. It is a expensive car with expensive maintenance, but still a car. I try to press this point to my parents all the time.

    1. Sometimes things are a great price, but a poor value 🙂

  12. Dear HP,
    What a well put together article! It summarizes what appears to be a vague idea into a clear coherent narrative.
    And somewhere in there, there needs to be a graph that plots the value of money against value of time. Time becomes more precious as your basic needs are met. Regards,

    1. Thank you Harjot. I’m not sure I would know how to draw such a graph. I do have other graphs in my first article on this topic that dance around that issue.

      Basically the deeper into your life you trade time for money, the worse deal you are getting. Time becomes more precious the less of it you have left, and money becomes marginally less effective as you gain more of it.

    • Brad on August 4, 2017 at 7:26 am
    • Reply

    Man… I only found you a few days ago and seem to connect to a lot feelings and emotions you had in the past. I have a high stress, very high paying job. At times can be rewarding but dream of the day I can retire. I am in Sales and it is very common for sales people to blow their paychecks on material items trying to make them feel better and buy happiness. With the help of my awesome wife, I have reversed this trend and saving aggressively towards financial freedom.

    Something I heard as you were a guest on a podcast was that you would chase around all these thoughts in your head. My mind runs a million miles an hour and I find myself doing that also. You mentioned meditation I believe. Never done it but worth a try. Keep up the good work.


    1. Awesome Brad. Good luck on your FI journey. Meditation has a way of slowing down those thoughts, or at least making it possible to let them go without attaching to them. Give it a try.

    • JC on August 15, 2017 at 9:51 pm
    • Reply

    “Who eats corn on the cob with a fork?”… I do 🙂

  1. […] a cup of coffee before you read The Happy Philosopher’s recent post on Understanding the Relationship between Utility, Happiness and Cost. He takes a […]

  2. […] Understanding the Relationship Between Utility, Happiness and Cost | The Happy Philosopher […]

  3. […] like how my radiologist friend, The Happy Philosopher, uses post-it note graphing technology to aid us all in Understanding the Relationship Between […]

Leave a Reply

%d bloggers like this: