Column: Econ 69: The economics of relationships

Allen Kelley, Thomas Nechyba, Drake Paul (yes, not Paul Drake, quite an inconsiderate name really), this column is dedicated to you. You have inspired an entire generation of Duke nerds to apply the ultimate social science to even their social lives.

But the Duke economics department is missing one important course--Econ 69: The Economics of Relationships. Its exclusion from the curriculum illustrates a glitch in the system; certainly Curriculum 2000 has some implicit social skills component. Alas, this column will have to suffice as a market substitute, offering an economic analysis of non-platonic relationships in five easy lessons (seven whole steps less serious than a 12-step program).

Lesson 1: Assumptions. To simplify models, economists make basic assumptions, namely that people are rational, that they have perfect information and that they are operating under conditions of perfect competition--sadly none of which fully apply in relationships. But then again, they don't in the market either....

Rational? Two words: beer goggles. Another 18 words: the hot girl with the boyfriend whose Samuel Powers looks are second only to his stale toast personality.

And as for perfect competition, ha. Some groups and individuals clearly have oligopolistic power. Take Cecily--the Bill Gates of game--who has literally dated every Fortune 500 guy. She clearly has an unfair edge on the market, and there is no Dating Regulatory Commission to stop her. And there are clearly trade barriers between groups; think of all the people you will never meet because they live on Science Drive or because their friends are so unbearable. With this level of market segregation, efficient dating outcomes may be out of the question.

Lesson 2: Supply and Demand. Too often girls complain about their boyfriends not spending quality time with them. Sara would constantly complain that Ray always made her pay at dinner, ignored her at parties and never planned fun dates for them. She said she felt powerless. What she did not realize, despite the fact that she was an econ major, is that this was not an exogenous variable that she had no control over. Her problem was that she let herself be in too high of supply. Because she spent so much time with Ray and her supply curve was pushed so far out, it crossed the demand curve at a very low price--thus making Ray willing to invest little in her. Sara needed to become more scarce, which would raise the amount of energy Ray would invest in each of their encounters.

Because there is simply one of you, you cannot alter supply by reducing yourself (so don't go becoming anorexic and sue The Chronicle). But, you can alter the time you spend with the person so you appear scarce. Scarce resources are, after all, what we value most. Be elusive, shifting in your supply curve. We are simple creatures that think paying more for something means it has more value. So go become expensive (time-wise).

Another strategy to raise the quality of interactions is to increase demand (well, duh). An increase in demand is ideal, because it increases both quality and quantity--but it is more difficult to control. One can only hope to indirectly influence demand through factors that go into the demand function--like seeming fun, put-together and not basically not seemingly like you need to check into CAPS.

Lesson 3: Risk aversion. Entering into a new relationship is inherently risky. Your feelings can get Larry Moneta-ized, you could end up with someone who is crazy--or more importantly, drives you crazy--and worst of all, there could be a heinous breakup.

After a seven-game World Series-length breakup last semester, Dan was very risk averse and in fact, was trying to avoid investing altogether. People who are risk averse but still want a relationship often enter into a relationship that is low-risk, low yield. They know they will not be rejected, but it is clearly not with their ideal mate (settling, if you will).

And there are others who invest solely in junk bonds, which 80 to 90 percent of the time yield negative returns (for English majors, that means they are very high risk), but the 10 to 20 percent of the time that they work, the payback is so substantial it yields an overall positive gain. This investment strategy is not for everyone. A large account of emotional capital and a willingness to temporarily sacrifice large chunks of it is a must. This is not for the timid of heart, but for those brave souls, your chance of striking platinum is greatest.

Lesson 4: Time inconsistency problems. Duke students notoriously have this problem, as demonstrated through their passion for procrastination. One teacher told his class that he had never seen a clearer example of this phenomena, one which usually was reserved for explaining the behavior of drug addicts. Alas. Maybe it is only human to place more value on today's happiness than total future happiness (or maybe it's just us and the drug addicts, either way...).

People will often choose not to exit a bad relationship because the immediate discomfort costs are too high, even though in the long-run, or even a matter of weeks, they will be much happier because they did. Also, the perceived costs of being alone in the immediate short-run can be too high to bear. Because of this, people will often couple up with someone who is not right for them and will ultimately make them less happy because it brings immediate utility to not be alone.

Lesson 5: Externalities. Econ classes clearly have some unintended effect of making you apply economic analysis to everything you do. Warning: Such conversations economically analyzing relationships at parties could lessen your chance of actually having a relationship.

Whitney Beckett is a Trinity senior. Her column appears every other Friday.