Pramit Bhattacharya in Live Mint
Can the dismal science of economics throw light on the seemingly irrational phenomenon of love? For a long time, economists did not consider love to be within the ambit of their study, and ignored it altogether even as they used the economic lens to study other esoteric subjects such as crime and fertility. The neglect of love ended in the 1970s, when the Nobel winning economist Gary Becker for the first time laid out a framework to analyse love and marriage in a series of research papers.
Using simple economic tools and high school algebra, Becker showed how seemingly irrational life choices and decisions could in fact be explained by rational choice theory. Becker’s analysis was based on two simple principles. First, given that marriage is almost always voluntary, either by the couples or their parents, the theory of preferences can explain marriage and couples (or their parents) can be expected to derive more satisfaction (or higher utility) from being married than from remaining single. Second, Becker held that a market in marriages can be presumed to exist since many men and women compete as they seek mates. Each person tries to find the best mate subject to market conditions.
Based on these two principles, Becker draws out a theory of marriage that says that each person will tend to pair with someone with whom the chances of maximizing their household production of goods and services are the highest. The set of household goods and services include tangible goods the market provides as well as non-market goods such as shared pastimes, or the joys of raising children. The couple’s level of satisfaction is determined both by market and non-market earnings. But, given that time and effort spent on raising market earnings can diminish non-market earnings, each couple uses economic principles to allocate the scarce resource of time.
Becker argued that the division of labour within the family is driven by the differences in market earnings, which in turn are determined by the marginal productivity of the two partners. The partner with a higher wage then specializes in the production of market goods and services, while the partner with the lower wage specializes in the production of non-market goods and services. Other things being equal, a high-earning male is more likely to marry a low-earning female and vice-versa. Of course, if women are perceived to have a comparative advantage in the production of non-market goods (such as those involved in raising children), it is likely that the marriage market equilibrium will tend to have many more pairs where men rather than women are the sole wage earners.
While spouses are likely to differ in market earnings, both theory and empirical evidence suggested likes tend to attract more when it comes to other attributes such as education or physical attractiveness, wrote Becker. He argued such attributes as education or beauty are complementary inputs in the production of non-market goods and services whereas wage income could be substituted by one partner for the other. The lack of complementary attributes could well explain a significant chunk of separations among couples, Becker hypothesized.
The gains from marriage are determined by how the division of labour occurs. If a lot of effort is expended on policing whether a partner is performing his or her assigned role, then the net gains to the couple will be relatively less (the gains are essentially reduced because of transaction costs). The gains also depend on whether a sizeable fraction of the output generated after marriage can be jointly shared. Love accentuates the gains from marriage because each partner then cares about the satisfaction (or utility function) of the other. Consequently, with love, transaction costs are lowered and the gains from marriage increase. Love also increases the likelihood of increased production of shared family goods, thereby raising the gains from marriage further.
Becker was among the first economic imperialists who extended the reach of economics to analyse complex social behaviours that were considered the exclusive domain of sociology. Social scientists initially ignored, then mocked, and finally began accepting some of Becker’s key insights into the nature of marriage. Later work by economists and sociologists have refined, extended and, in some cases, revised Becker’s framework.
A 1997 review essay by economist Yoram Weiss of Tel-Aviv University succinctly summarizes some of the key economic insights into marriage. Weiss lists four key economic reasons for marriage. First, division of labour after marriage tend to raise joint gains. Second, with imperfect credit markets, marriage can solve credit intermediation problems, with one partner investing in the other. For instance, if both partners work but one has a greater ability to earn, it may be profitable for the partner with the lower ability to earn to fund his or her partner’s education while he or she takes care of home expenses. Such arrangements are indeed common in the modern world. Thirdly, marriage leads to the production of shared family goods (more technically, public goods, which are non-rivalrous and non-excludable). Finally, marriage leads to risk-pooling when two partners have uncertain but different sources of income.
An influential 1999 study of cohabiting couples by sociologists Julie Brines and Kara Joyner extended Becker’s framework of married couples to analyse the behaviour of people living together. The duo analysed data on both married and cohabiting couples to find that although there was some evidence pointing towards specialization among married couples, the evidence was weak.
There was no evidence to suggest specialization among cohabiting couples. On the contrary, live-in relationships tended to be durable when both partners shared equally in domestic work. Unlike married couples who have a more collectivist approach, cohabiting couples tend to display a more individualist streak. Hence, cohabiting couples tend to balance their individual interests by basing their behaviour on the principle of equality.
More interestingly, the chances of a break-up were far higher among cohabiting couples than among married ones when women earned substantially more than men. In contrast, the chances of a break-up are much smaller when a wife begins to earn more than her husband. While cohabitation seems to be based on the premise of equality and rejects traditional gender roles, it is not immune to them, the study suggests. It is marriage that seems to withstand unorthodox economic power relations better.
“Cohabitation draws part of its appeal from an image that promises greater flexibility and experimentation,” wrote Brines and Joyner. “In short, it bespeaks few ‘rules.’ For a relationship to persist, however, some operating principle must mediate the tension between the interests of the parties involved. For husbands and wives, the marriage contract helps to manage these interests, encourages joint investment, and permits some flexibility around the norm of male providership…. For cohabitors, uncertainty and implied contracts intensify the tension between the interests of the two partners and place greater stress on a bargaining principle that is difficult to adhere to over time. Thus, we find that breaking the rule in an arrangement ‘without rules’ is more disruptive than any comparable violation in marriage.”
As Weiss pointed out in her essay, economics alone is not enough for marital analysis. Very often non-economic considerations do play a dominant role in romantic relationships. Yet, economics can provide valuable insights into the nature of relationships, which together with observations from other disciplines such as sociology can feed into a unified theory of relationships.
The power of economics stems from its ability to explain how rational calculations underlie seemingly irrational behaviour. Even romantic melodrama, such as a lover fasting outside his beloved’s house, can be explained by rational choice theory. Such an act is a powerful way of signalling commitment, according to the Nobel economist Michael Spence.
Do Valentine’s day gifts also satisfy the test of economic rationality? Neil MacArthur and Mariana Adshade use game theory to show why it is best to avoid such gifts, especially if a couple is already committed.
“Valentine’s Day, essentially, is a game in which each person who is in a relationship must choose between two strategies; buy a gift for their significant other or do nothing to celebrate the day,” the duo writes.
Given that there are two players, each with two strategic options, there are three possible outcomes that can happen on the day. The first outcome is that both buy gifts, and are satisfied to learn that their partner is committed to the relationship. But that satisfaction comes at a huge cost as most Valentine day gifts are over-priced. The second outcome is that one partner buys a gift and the other does not. One need not explain the consequence. Suffice to say that break-ups tend to spike up in the second half of February, according to Facebook data. The third outcome is that neither gifts.
“The best strategy would be for couples to ignore the holiday altogether, but they won’t because there is just too much pressure to conform to the holiday traditions from both inside and outside the relationship. From a game strategic perspective, participating in the holiday just leads to sub-optimal outcomes,” the duo argues.