Monday, July 14, 2008

What economics can teach us about love

Ben Stein (former FTC economist) offers these insights:
  • If you invest caring, patience and unselfishness, you get those things back.
  • High-quality bonds consistently yield more return than junk, and so it is with high-quality love.
  • Stay with high-quality human beings. And once you find you that are in a junk relationship, sell immediately.
  • The most appealing and seductive (that word again) exterior can hide the most danger and chance of loss.
  • In every long-term romantic situation, returns are greater when there is a monopoly.
  • The returns on your investment should at least equal the cost of the investment.
  • Fall in love in haste, repent at leisure.
  • Realistic expectations are everything.
  • When you have a winner, stick with your winner. Whether in love or in the stock market, winners are to be prized.
  • Have a dog or many dogs or cats in your life.
This advice seems to parallel that from my favorite textbook:
Marriages are vulnerable to the same type of post-investment opportunism that plagues commercial relationships. Parties invest time, energy, and money in a marriage, the kinds of investments that differentiate marriages from more casual, spot market transactions. These investments are valuable to the marriage parties but are largely sunk, in that they have a much lower value outside the relationship. The marriage contract penalizes postinvestment hold-up (i.e., divorce) and thus makes couples willing to invest more in the marriage.

Consider an apocryphal story of an economist and his fiancee. The two were receiving premarital counseling from a priest. The priest’s first question to them was ‘‘Why do you want to get married?’’ The economist’s fiancee answered, ‘‘Because I love him and want to spend the rest of my life with him.’’ The economist had a somewhat different answer: ‘‘Because long-term contracts induce higher levels of relationship-specific investment.’’ A year later, trying hard to find the right words to express how he felt about his wife, he wrote an anniversary e-mail—using a nice cursive font—declaring that his ‘‘relationship-specific investment was earning an abnormally high rate of return.’’

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