Saturday, December 11, 2004

Applying Economics to Relationships, Sex, and Marriage

I am not studying as hard for that economics and law final as I should be. So here I am instead. Given that an entire chapter is devoted to the economics of sex and marriage law, I blog to get me motivated into the right frame of mind.

Goose's complaint.

Andrew's friend's complaint.

Always interesting to get the female perspective.

OK, now the economic explanation. You know what the real problem is? The population of each gender is so diverse and widely dispersed that transaction costs are too high to get a good match. Ultimately, as each individual is a maximizer, each individual wishes to wait out for the best match. However, such matches cannot be found with the high transaction costs, where Allen defines transaction costs as the costs of establishing and maintaining property rights (Allen 1999), or in this case, the costs of finding and establishing the bond necessary for a relationship. One must first find a person, then get to know that person, ensure necessary attribute requirements are met, and then finally experience life with that person.

Search costs decrease drastically with the advent of the Internet and online dating and networking services. However, it is argued here that search costs take up only a minimal percentage of the entire transaction cost set. Ultimately, investment into discovering a relationship's prospects requires a much higher percentage of the overall transaction costs, if we consider that search costs are able to utilize economies of scale over the entire population, while the other transaction costs cannot do so; otherwise, the subject is considered to have cheated on his/her date(s).

Of all the bottlenecks that keep transaction costs high, time constraints would be the largest impact. If we assume that full transaction costs (excluding search costs) include at least one year of one's life, a person may be able to only analyze 10 candidates per decade. Added to this conundrum is the fact that one is not able to utilize economies of scale successfully, unless one keeps such activities secret. However, the risk of such action is extremely high in that, if found out, a candidate (and potentially all other candidates if word spreads) will reject the subject as a cad. This is possibly not in the best interests of the subject anyway, as economies of scale gained in terms of time may be lost in terms of opportunity costs for use of income; that is, it is expensive to maintain prospects for more than one potential girlfriend at a time (eg. if we want to increase the rate of candidate analysis to 10 candidates per year, rather than per decade, the percentage of one's income spent on candidates essentially increases tenfold, a prospect that can quickly render one bankrupt).

The best way to decrease the gross sum of these high transaction costs would be to ensure that search efforts return high quality results. With higher quality search results, one will be able to find candidates that have less risk for rejection, which will lower the total expected value of transaction costs. The puzzling question would be why expected transaction costs have not been lowered, despite the creation of matchmaking services that supposedly increase the quality of search results. Several possible explanations exist.

Firstly, it is possible that the combination of individuals that result in maximization does not take geographic locations into consideration. Consequently, individuals may be left with the horrible dilemma in having to decide whether to incur extremely high transaction costs to relocate or rejection of maximization maxims for the sake of lowering transaction costs. Profiling through online dating services may have had the ironic effect of actually encouraging non-maximiation by making the inputs necessary for utlity maximization clear; Pareto improvements are impossible.

Secondly, there may be an extremely high incidence of lying on the Internet. Stories of online stalkers are common, as is the idea of a bearded, tattoed 50 year-old Hell's Angel pretending to be an 19 year-old up-and-coming female supermodel. Such mendacity actually increases transaction costs, as it may take some time to discover the candidate's deception.

Thirdly, the opportunity cost of having a relationship may be so high that it is in fact not desirable for the majority of the population. Individuals may place more importance on generating income (rather than not generating as much, and then frivolously spending what little income is generated), professional or academic pursuits, extra-curricular non-romantic activities, pets, or inanimate entities, such as rocks. This may be especially true when the substitute interest can actually take the place of several categories (eg. pet rocks that assist in geological studies for the pursuit of a Nobel Prize that can provide much income).

Given that according to the Coase Theorem, maximization occurs when transaction costs are zero, it seems unlikely that individuals would be able to achieve maximization in relationships, except through a stroke of luck. For maximization to be achievable, one must have perfect information and zero transaction costs, both of which are unachievable.

Heh, ok, so maybe that's not an economically correct way of explaining things, but I had to throw the Coase Theorem in there somewhere.

However, until utility is maximized, one can always temporarily substitute with a virtual girlfriend. You knew that this was only the next step after the Tamagotchi craze. I remember walking down the street with my brother and two cousins. Suddenly, you heard this noise, and all three whipped out their Tamagotchis, crying out, "It's mine!" It reminds me of that cell phone scene in Clueless. I never did end up watching the entire movie....

Did I mention we have a budgie now? That thing is dang loud. I wonder what budgie tastes like.

And a bunch of fish. I don't even know where all this stuff came from. Shh... never end a sentence with a preposition, it's bad grammar. You're setting a bad example for all the kids, you know.

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