The Economics of Love: From Courtship to the Courtroom

1. The Economics of Love: From Courtship to the Courtroom

2. or From Dating to Death / Divorce

3. Why ME on the topic of LOVE??

4. Why !!?? ECONOMICS ??!! on the topic of LOVE??

5. Why me…? Married: 19 years 3 months 15 days 0 minutes (+/-) Four children

6. Why me…? Bregenz, Austria KIIS Study Abroad Program Summer 2000

7. What does ECONOMICS have to say about LOVE??

8. Dating and dollars? Finances and the family? Retiring rich? Divorce decisions?

9. ECONOMICS has a lot to say about LOVE, but you may not be terribly interested… For example,

10. Love Dynamics between Secure Individuals: A Modeling Approach A mathematical model composed of two differential equations, which qualitatively describe the dynamics of love between secure individuals, is presented in this paper with two goals. The general goal is to show how dynamic phenomena … can be analyzed following the modeling approach traditionally used in all other fields of sciences. The

11. specific goal is to derive, from very general assumptions on the behavior of secure individuals, a series of rather detailed properties of the dynamics of their feelings. The analysis shows, in particular: why couples can be partitioned into fragile and robust couples, how romantic relationships are influenced by behavioral parameters and in which sense individual appeal creates order in a community.

12. You might ask (incredulously?), “Is this how economists think about LOVE…?”

13. No. (I lied…)

14. This article was actually published in Nonlinear Dynamics, Psychology, and Life Sciences (Volume 2, Number 4, October 1998: pp. 283-301) by Sergio Rinaldi and Alessandra Gragnani But it sure sounds (to me!) like what economists might have to say about LOVE!!

15. So what does ECONOMICS have to say about LOVE?

16. We have a lot to say about marriage and family… Marriage: 1658 articles Family: 5038 articles

17. We have a lot to say about death and divorce… Death: 672 articles Divorce: 327 articles

18. We have a lot to say about gender roles… Gender: 6796 articles

19. We even have a lot to say about cohabitation, human sexuality, abortion… Cohabitation: 61 articles Sexuality: 42 articles Abortion: 166 articles

20. But as a profession we don’t have much to say about LOVE. Some further excerpts:

21. This paper provides the first econometric analysis of rationalizations of virginity loss in terms of love. Data from the UK National Survey of Sexual Attitudes and Lifestyles are used to estimate logit equations to predict the claim that virginity loss was occasioned by being in love. The sample consists of 2,269 males and 1,476 females between the ages of 16 and 59. In economic terms, a dichotomy is found in terms of male and female virginity loss, such that to a degree it is possible to infer that sex is for males more of a consumption good, whilst for females it is more of a capital good. Alan Collins, Surrender Value of Capital Assets: The Economics of Strategic Virginity Loss, Journal of Bioeconomics v2, n3 (2000): 193-201.

22. …at times the conscious pursuit of self-interest is not compatible with its attainment. This contradiction arises because people face significant problems that cannot be solved by rational action. These problems sometimes require behavior that may later be contrary to their [self-] interest in order to solve them. Discusses behavior beyond self-interest; the altruism paradox; a theory of moral sentiments; signaling; telltale clues; reputation; predicting cooperation; becoming moral; fairness; love; and human decency. Concludes that people often do not act as predicted by the self-interest model. The reason for irrational behavior is not always that people miscalculate. Emotion is often an important motive for irrational behavior, and being motivated by emotion is often an advantage. Robert H. Frank, Passions Within Reason: The Strategic Role of the Emotions. New York : Norton, 1988.

23. Gary Becker (U. Chicago) writes “An efficient marriage market develop ‘shadow’ prices to guide participants to marriages that will maximize their expected well-being.” from Gary Becker, A Treatise on the Family, Cambridge, MA (Harvard University Press): 1981, page 39. Frank on Becker: “People with well-defined preferences act in purposeful ways to choose mates that best promote their material interests.” (op. cit., p. 185) A simple benefit-cost calculation…! i.e., the Market works!

24. So, economists do have something to say about LOVE. What do I, as an economist, have to say about LOVE?

25. First, I want to look at LOVE as -- a process (not unlike lifelong learning) -- a dynamic (ever changing) -- a product of personal growth and maturation LOVE IS A PERPETUAL GROWTH PROCESS!! (in economic terms, learning over a long time horizon…)

26. Let’s consider LOVE in three stages: 1. Dating 2. Marriage (perpetual commitment) 3. Termination of Marriage / Relationship -- By Death -- By Divorce

27. We undertake a similar analysis in economics, known as the “theory of the firm”. We look at the progress of a firm in three stages: 1. Start-Up 2. Optimization 3. Shut-Down -- Sold -- Folded

28. We can expand the three stages to seven: 1. Product Conceptualization 2. Preliminary Market Analysis 3. Start-Up 4. Production (in Three Stages) 5. Profit Maximization 6. Long Run Dynamics 7. Shut-Down

29. Now let’s extend this theory of the firm to an analysis of LOVE. Our product / enterprise will be a “happy, successful, long-term relationship”.

30. Theory of the firm: 1. Product Conceptualization

31. Theory of the firm: 1. Product Conceptualization LOVE corollary: 1. “I Dream of Genie”

32. Theory of the firm: 2. Preliminary Market Analysis

33. Theory of the firm: 2. Preliminary Market Analysis LOVE corollary: 2. The Hunt: “The Fox(es?) and the Hound”

34. Theory of the firm: 3. Start-Up

35. Theory of the firm: 3. Start-Up LOVE corollary: 3. Courtship

36. Theory of the firm: 4. Production (in Three Stages): -- Increasing Returns to Scale -- Constant Returns to Scale -- Decreasing Returns to Scale

37. Theory of the firm: 4. Production (in Three Stages) -- Increasing Returns to Scale -- Constant Returns to Scale -- Decreasing Returns to Scale LOVE corollary: 4. Marriage (in Three Stages) -- Engagement and Honeymoon -- Marriage -- Children

38. Theory of the firm: 5. Profit Maximization

39. Theory of the firm: 5. Profit Maximization LOVE corollary: 5. “As good as it gets”

40. Theory of the firm: 6. Long Run Dynamics -- Diversification into new products -- Competition: “New firms enter...” LOVE corollary: 6. Over the Long Haul -- “The grass is always greener...” -- “What goes around (^) comes around...”

41. Theory of the firm: 7. Shut-Down -- The Company is sold -- The Company folds LOVE corollary: 7. Termination of Marriage / Relationship -- Death -- Divorce

42. Let’s go back to the earlier stages in the building of our “love product”: 1. Product Conceptualization “I Dream of Genie” 2. Preliminary Market Analysis The Hunt 3. Start-Up Courtship

43. 1. Product Conceptualization (product = LOVE) When first thinking about producing a product, a firm or individual must consider short term and long term goals. These goals must be compatible: short term achievements must fit into the long term strategy. If you are looking at LOVE over the long haul…, What are your long-term goals? What are your short term goals? Are your “desired” short-term achievements consistent with your long-term goals?

44. Product Conceptualization (product = LOVE) Sub-topic: Product Development • How are you developing your “love potential”? • Have you studied successful relationships? • Have you had successful short-term relationships? • How have those short-term relationships ended? • What values are you bringing (or developing) to insure success?

45. 1. Product Conceptualization (product = LOVE) Sub-topic: Product Development Sub-topic: Product Marketing • Have you planned an overall marketing strategy? • What are you doing to make yourself more marketable? • Do you have a “consultant” to guide your progress? • Are you advertising yourself as Generic? High quality! **!!!One of a kind!!!** …a cheap imitation?

46. 2. Preliminary Market Analysis (product = LOVE) • Have you studied the competition (looked at products being produced by your “competitors”)? • Have you looked at strategies that launched other successful products? …or strategies where products failed? • Have you considered where you might best launch your product (have you thought about test markets…)? • Have you been to the markets personally to see who’s buying and what they’re buying?

47. 3. Start-Up (product = LOVE) Startup costs are significant. One of the major questions facing an individual (or firm) is “Am I (are we) willing to sustain short term losses for long term gain?” • How much are you willing to ask of yourself in the short run to achieve your long term goals? • What are you willing to sacrifice today..., for tomorrow? • How much are you willing to invest, knowing that there are outcomes that include “total loss”? • If you know that you have only shot at getting a product to market, is this the right product and the right time?

48. So, what did I tell the students in Bregenz? -- In its early stages, LOVE is a game. -- You make up the rules as you go along. -- You ENFORCE the rules as you go along. -- Your best strategy is “selective information disclosure”. > You “reveal” yourself little by little. > You remain somewhat mysterious. > You’re not playing “hard to get”, you’re simply playing safe!!

49. Is this Economics…? You bet it is! In business, product development (content AND process) is a closely-guarded secret. General knowledge (BS, BA, BBA) vs. firm-specific knowledge Information is power: SEC and “insider trading”! USDA lock-ups MLB signs and NFL playbooks

50. And what happens when your RIVAL becomes your PARTNER? In business, the books are open… In football/baseball, “Here’s the playbook.” In LOVE, it’s the same: Complete disclosure! No more secrets… No more games…