The economics of relationships

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Bein Stein, a lawyer, writer, actor and economist shares the lessons in love, by way of economics. “Economics is the study of the allocation of scarce goods and services. What could be scarcer or more precious than love? It is rare, hard to come by and often fragile.” I am always amused and it’s actually one of my pastimes to correlate things to economics and financial engineering (though I’m actually not an Economics major).

(a) Assuming this is a reciprocated case, the returns in love situations are roughly proportional to the amount of time and devotion invested.

(b) (I absolutely liked this junk bond correlation. Obviously I’ll emphasize on this!)

High-quality bonds consistently yield more return than junk, and so it is with high-quality love. As for the returns on bonds, you have to remember that junk bonds are not free money. Junk debt outperforms high quality only in rare situations, because of the default risk.

In love, the data is even clearer. Stay with high-quality human beings. And once you find that you are in a junk relationship, sell immediately. Junk situations can look appealing and seductive, but junk is junk. Be wary of it unless you control the market. (The absolutely surest way to ruin your life is to have a relationship with someone with many serious problems, and to think that you can change this person.)

(c) Research pays off. The most appealing and seductive (that word again) exterior can hide the most danger and chance of loss.

(d) In every long-term romantic situation, returns are greater when there is a monopoly.

(e) The returns on your investment should at least equal the cost of the investment.

(f) Long-term investment pays off. To coin a phrase: Fall in love in haste, repent at leisure.

(g) Realistic expectations are everything.

(h) When you have a winner, stick with your winner. Whether in love or in the stock market, winners are to be prized.

(i) Have a dog or many dogs or cats in your life. These are your anchors to windward and your unfailing source of love.

Ben Franklin summed it up well:

In times of stress, the three best things to have are an old dog, an old wife and ready money.