For people like me, economics is everywhere if you know where and how to look. Where is the “economy” when it comes to Valentine’s Day? Here are some less romantic suggestions.
Some economists try to model marriage as a joint production function, implicitly modeling marriage as an enterprise that “produces” things such as “household services.”
For example, at my house, I mow the grass because I’m big enough to push the lawn mower up the hill. My wife is a surgeon and has standards of cleanliness that far exceed my own, so she cleans and organizes large areas of the house. But is it accurate to say that we are “trading” these “services” to each other? If so, I’m sure we’ll both want to revisit the terms of this agreement we didn’t make.
Other economists (including Lloyd Shapley, co-winner of the 2012 Nobel Prize in Economics) have modeled marriage as a matching game. With some caveats and assumptions, they proved that a stable set of marriages always exists. This research serves as the basis for an algorithm that popular dating apps have used for years. However, as anyone in a relationship knows, finding a partner and keeping that partner are two very different tasks.
These models aren’t exactly wrong, but they feel somewhat… incomplete. “Hey, baby, what do you and I say that we specialize in certain aspects of home production and mutual trade services?” That probably won’t win you many dates. Despite my best efforts, I have never won an argument with my wife by appealing to comparative advantage.
Instead, what I want to offer here are insights from economics that may help everyone today in some way, shape, or form, regardless of relationship status. To that end, we discuss the economic concepts of signaling and thinking at the limit.
Signaling 101
Suppose you have someone you like. You are an economist who wants to tell them this. Since you’re an economist, the obvious answer is cash, right?
Wrong.
Cash is impersonal. Anyone can give you cash, so the other person doesn’t know anything about your feelings. What you need to show your commitment is something that costs you more than money alone. The cost must be personal and must demonstrate an investment of time, attention, and effort that cannot be faked.
High schoolers make clever and charming proposals at prom, and pop culture is replete with examples of boombox serenades and flash mob dance performances. These are very expensive, require hours of practice and adjustment, and are not guaranteed to work.
Here’s the problem. Not only must a signal be costly for the sender to send, it must also be worth receiving for the receiver. (I promise that if I try to tell my wife how much I love her by dancing and singing in public, she will definitely leave me.)
This is why giving someone their favorite flowers (especially if they’re hard to find) is a better gift than just flowers or, worst of all, cash. As attention to detail and personalization increases, gifts say things like, “We’ve been paying attention, so we know what you like” and “We got it for you!” These signals are almost impossible to fake, which is exactly what makes them valuable.
People always reveal what they want. But it takes effort to listen to and pick up the cues they give. The best romantic gestures don’t have to be expensive. they are attentive.
think in the margins
What exactly is “margin”? Despite all this emphasis, economics is surprisingly unclear on this point. As far as I can tell, all we’ve really said on this issue so far is that the “margin” is basically just the “next unit” or, if we’re being really thorough, the “next decision.”
Let’s start with a simple thought experiment. Let’s say you want to go on a date and there are two people who want to go on a date with you. Let’s call them Pat and Devin. The expected marginal utility for dates containing them is:
(Please note that this hypothesis is about dating, not relationships.)
Based on the amount of utility in the table, if you want to maximize your utility, you should base your decision only on the next available date. So three dates with Pat, then two dates with Devin, then back to Pat and two dates… you get the idea? If we think at the “margin” and assume that Pat and Devin are also maximizing utility, we can quickly see how someone would “date.”
When you’re casually dating, the only margin is the “next date,” which may be just one night. But when you find the right person, something changes. The margin is no longer “next date” and the time period is longer. Ultimately, that blank space becomes “the rest of your life.” You’re no longer asking, “Should I go on another date with this person?” but, “Do I want to build a life with this person?”
Looking at the table again through the lens of potential “life partners”, it’s clear that Pat is the best choice. The overall usefulness of living with Pat exceeds that of living with Devin. But if you were only thinking about one date at a time, you’d never notice that.
be nice
Economics has a bad reputation as a “dismal science.” Based on the first and simplest example shown above, this may seem obvious. Phrases like “joint production function” and “expected marginal utility” are of no use on Valentine’s Day. But the economist who started it all had something to say about love.
Even before Adam Smith wrote The Wealth of Nations, he was already well known for his book on moral philosophy, The Theory of Moral Sentiments. In that first book, Smith argued that we don’t just want to be loved, we want to be lovable. Moreover, we want to be worthy of love.
The distinction here is important. Being loved is something that happens to you. Being nice is what you do. It takes effort, care, and genuine concern for the well-being of others, and that’s what makes a signal so reliable an investment that is expensive and hard to fake.
This Valentine’s Day, whether you’re in a relationship, about to start a relationship, or just showing the people you care about, your finances are simple. Pay attention to your loved ones in concrete terms, not in the abstract. Show them through effort and attention that you are listening. And promise not only to love someone, but to be worthy of their love.
In short, love and be beautiful.
Happy Valentine’s Day.
