2 Oct 2014

Economics can help your relationships*

Ezra S writes:**

We all strive for harmonious, satisfactory interpersonal relations. Unfortunately many relationships do not work as harmoniously as intended for various reasons. It is often difficult to put a finger on what causes the struggle. This is hardly surprising, considering that important aspects of personal relations such as love, commitment and understanding are very hard to measure.So what makes personal relations work well or perhaps not so well? What it comes down to is usually a level of contentment and happiness related to the relationship. This again is almost impossible to measure. To understand when a relationship makes us happy and why, one might have to take basic economic concepts into account. This might sound strange and simply wrong, considering that personal relations should revolve around mutual feelings rather than something as unromantic as economic theory. Fair point; on second thoughts, however, is not anything that helps us understand what makes a relationship satisfactory worth exploring?

In 1963, John Stacey Adams proposed "equity theory" to explain what makes people happy in their workplace. He argued that people are content with their work if the ratio between their input (e.g. time and effort) to their output (e.g. monetary reward and appreciation) is similar to that of their co-workers. If I work harder and am better qualified than somebody else, meaning my input is higher, than my output should reflect that proportionately. This theory is based on the simple human longing for fairness. It seems natural to use such an approach when it comes to work satisfaction, a field where economics seems to belong. But why should the same approach be out of place in the realm of personal relationships? We want fairness when it comes to our work as well as our relationships. Therefore it should not be unreasonable to assume that we feel content in a relationship if the ratio between input and output is the same among partners, right? Relationships between wealthy older men and young, attractive women are, although often frowned upon, no rarity. Many people seem to be confused how those relationships can be satisfying for both partners (“What does she see in him?” or “She only wants his money!”). Using an equity theory approach, this satisfaction is perhaps not that difficult to comprehend. The inputs and outputs in those relationships are usually completely different. Females provide youth, beauty and status, while males offer security and a certain lifestyle. If the ratio between both parties is considered equal, why should one party be unhappy about this mutually equitable relationship?

Bottom Line: Taking a step back and assessing our relationship from an economic, equitability viewpoint might improve the understanding of our personal relationships. It might sound unromantic and certainly controversial in this context, but that does not make it inapplicable. So next time someone in your relationship is unhappy, see if perhaps a simple change can restore the equitability of your relationship and thereby make it satisfactory.

* If these ideas help, then great. It they only destroy your belief in the love behind relationships, then forget what you just read!

** Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.

1 comment:

Nadine said...

This is so romantic Ezra! I understand the argument here, but don't you think that since our utility for different things is highly personal it could be difficult to just adjust? For example, if I'm a trophy wife, and the benefits of my lifestyle and stability outweigh the costs of having to get cosy with a really really old guy for now, who's to say that in the future, my oppurtunity cost of not being in a loving relationship won't begin to outweigh that? The husband won't be able to do much about it at that point, as a lot of the things we look for in relationships might have much higher price tags on them than any rich old guy can outweigh! :)

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