S-Shaped Utility Curves, Poverty, and Risk-Taking

When economists think about how much utility is gained from additional economic resources the basic assumption is that an additional amount of income or wealth increases utility, but by a diminishing amount–because additional income or wealth has diminishing marginal returns. However, there’s also a long-standing tradition in economics of thinking about why this relationship might have an S-shape. Benoît de Courson, Willem E. Frankenhuis, and Daniel Nettle discuss this past tradition and offer new thoughts in “Explaining the paradoxical effects of poverty on risk taking: The Desperation Threshold Model” (Behavioral and Brain Sciences, published online February 23, 2026, not yet typeset). Here’s a basic diagram, showing the relationship between resources (like income or wealth) and utility. Focus first on the upper-right portion. This standard shape shows that greater resources lead to additional utility, but the marginal gains to utility are diminishing, and so the curve flattens out.…

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