The Economics of Love:

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The Economics of Love From Courtship to
the Courtroom
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or From Dating to Death / Divorce
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Why ME on the topic of LOVE??
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Why !!?? ECONOMICS ??!! on the topic of
LOVE??
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• Why me?
• Married
• 19 years
• 3 months
• 15 days
• 0 minutes (/-)
• Four children

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Why me? Bregenz, Austria KIIS Study Abroad
Program Summer 2000
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What does ECONOMICS have to say about
LOVE??
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• Dating and dollars?
• Finances and the family?
• Retiring rich?
• Divorce decisions?

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ECONOMICS has a lot to say about LOVE, but
you may not be terribly interested For example,
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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
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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.
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You might ask (incredulously?), Is this how
economists think about LOVE?
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No. (I lied)
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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!!
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• So what does ECONOMICS have to
• say about
• LOVE?

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• We have a lot to say about marriage and family
• Marriage 1658 articles
• Family 5038 articles

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• We have a lot to say about death and divorce
• Death 672 articles
• Divorce 327 articles

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• We have a lot to say about gender roles
• Gender 6796 articles

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

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But as a profession we dont have much to say
about LOVE. Some further excerpts
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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.
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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.
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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!

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

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• Lets consider LOVE in three stages
• 1. Dating
• 2. Marriage (perpetual commitment)
• 3. Termination of Marriage / Relationship
• -- By Death
• -- By Divorce

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• 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

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• 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

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Now lets extend this theory of the firm to an
analysis of LOVE. Our product / enterprise will
be a happy, successful, long-term relationship.
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• Theory of the firm
• 1. Product Conceptualization

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• Theory of the firm
• 1. Product Conceptualization
• LOVE corollary
• 1. I Dream of Genie

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Theory of the firm 2. Preliminary
Market Analysis
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Theory of the firm 2. Preliminary
Market Analysis LOVE corollary 2. The
Hunt The Fox(es?) and the Hound
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Theory of the firm 3. Start-Up
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Theory of the firm 3. Start-Up
LOVE corollary 3. Courtship
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Theory of the firm 4. Production (in
Three Stages) -- Increasing Returns to
Scale -- Constant Returns to Scale --
Decreasing Returns to Scale
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• 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

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Theory of the firm 5. Profit
Maximization
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Theory of the firm 5. Profit
Maximization LOVE corollary 5. As good
as it gets
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• 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...

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

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• Lets 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

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• 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?

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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?

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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?

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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
  whos buying and what theyre buying?

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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?

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• 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.
• gt You reveal yourself little by little.
• gt You remain somewhat mysterious.
• gt Youre not playing hard to get,
• youre simply playing safe!!

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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

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And what happens when your RIVAL becomes your
PARTNER?

• In business, the books are open
• In football/baseball, Heres the playbook.
• In LOVE, its the same
  Complete disclosure!
• No more secrets
• No more games

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Dare I go a bit further? (get a bit more
personal)

• Application to the physical side of LOVE?
• What costs might todays students be paying
  by engaging in excessively
  permissive behavior?
• What value might you placing on yourself
• if you give yourself so freely
• or sell yourself so cheaply?

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I am not being a moralist here, Im being an
economist.

• Its what this economist has to say
• about
  
  
  LOVE!
• (thank you)

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• Questions?
• Comments?
• Especially from STUDENTS