The Economics Of A Successful Marriage

In many ways, marriage is like a business arrangement. Two people get a license, make an agreement and pool their resources together towards a common goal. There is a verbal contract that states that both parties are committed to making it work and put in a large initial investment with hopes for great returns over time. Although there are other elements involved, a marriage can benefit from common economic principles that are usually reserved for traditional business.

TUTORIAL: Estate Planning

Cost-Benefit Analysis
In a relationship there are many decisions that need to be made. An easy way to decide what to do is to use the cost-benefit analysis. Consider if the marginal cost of doing something is worth more or less than the benefit that would be received from it. For example, is the cost of nagging your spouse about their annoying habit worth the potential benefit? It comes down to learning how to pick your battles and letting go of things in your relationship that cost more than they are worth. (Strengthen your marriage by discussing these financial pitfalls, see Top 6 Marriage-Killing Money Issues.)

Competitive Advantage
A successful marriage isn't always 50/50. In some cases, the best bet is to divide the marital duties based on who can do them the best. If you are a pro at doing laundry then it should be your job while your partner stays in the kitchen making dinner. This method will save a lot of time and frustration even if it isn't always "fair." (Learn how specialization can make production efficient in 3 Secrets Of Successful Companies.)

Moral Hazard (Too Big to Fail)
This overused phrase, which sprang up when businesses like Fannie Mae, Freddie Mac and Bear Stearns were deemed by the federal government to be too important to be crushed by the economic crisis, is important to consider in terms of your marriage. The theory is that those who feel that there are no consequences will make unnecessary risks. The assumption that your marriage is "too big to fail" can lead to taking your spouse for granted. Stay invested in your relationship if you want to stay out of divorce court. In marriage, there is no such thing as a bail out.

Loss Aversion
In the stock market, some investors hold on to bad stocks to avoid admitting defeat. By selling a losing position they lock in a loss. In the same way couples continue to argue over an issue because neither side wants to lock in the act of being wrong. Just because you didn't admit fault does not mean you were right. If you were wrong it will make things much worse. Holding onto a losing position in the stock market is the same thing, you won't admit it but you still lose all of your money.

Emotional Quick Decisions
The old adage of not going to bed angry is challenged with this theory. Experts suggest taking a time out even if that means ending the day without a resolution. This gives you time to reflect and make decisions based on sound reasoning, and lets you consider future consequences. Once you have cooled off, you are likely to realize that it is time to hedge your bets to minimize your losses. Most of the time emotions should not take a back seat in a relationship, and often a gut feeling is all you have, but don't let your excitement overcome you especially when rational thinking is needed. (Most investors buy high and sell low, but you can avoid this trap by using some simple strategies, see How To Avoid Emotional Investing.)

Game Theory
The prisoner's dilemma game is most commonly used to explain this principle. In the example, two partners in crime who are being questioned by police in separate rooms must decide if it is best to confess or to not confess. When the payoffs are calculated it is found that the best option is for both parties to confess, or in other words work towards the common good. In a marriage this also makes sense. If spouses are acting only for their own self-interest they are doomed to fail. If you work together with your partner and stay on the same page, you are more likely to get the most benefit.

Think at the Margin
Change can be scary. The idea of overhauling parts of your life can lead to being so overwhelming that you end up doing nothing. In microeconomics, the benefits of small, marginal changes are stressed. For instance, if your spouse is upset that you never help with the kids, try making a small difference like getting them ready for bed a couple times a week. The cost of this change – probably an hour a week- is small compared to the benefits of a happier spouse.

TUTORIAL: Budgeting Basics

The Bottom Line
The economic approach to marriage might not be the most romantic option, but it does provide a realistic framework for managing your relationship. If these tried and true theories can keep multi-million dollar corporations afloat, they should be able to increase the odds of wedded bliss.

Leave a Reply