You find the partner of your dreams, romantic music starts playing in the background, red roses strewed everywhere, you smell a flowery scent – truly, love is in the air. But have you ever wondered who pays for the band of musicians? How much do those roses cost? Which tax did you pay on the perfume? You might not realise it, but economics and love are a couple as iconic as Romeo and Juliet. Economics is regarded as something very mathematical, cold and calculative. Whereas, love is synonymous with warmth, emotions and intrigue. Here we will break the disassociation between the two; what Charles Dickens calls ‘fact and fancy’ 1, more aptly the ‘fact of mind’ and ‘fancy of heart’.
Omnipresent in any mythology you name, be it Roman, Greek, Egyptian, Indian, love is something that has fascinated us since the dawn of civilization. Philosophers have spent a considerable amount of time thinking about it, so have priests, poets and idlers. Love is one thing that cuts across age, class, gender and race. The latest group of people to delve into the mysterious world of love are economists. So, does love obey the laws of economics?
For an economics student, the most elementary law is the ‘Law of Diminishing Marginal Utility’. In simple terms, this law states that the more the units of something we consume or encounter, the lesser we like it. Amazingly, love follows this principle. The first person you fall in love with remains closer to your heart than those who come later. The more men or women you encounter, the more your love is dispersed. Perhaps that is why many married couples are haunted by their ‘first loves’.
Picture this. You’re on a first date and anxious to make a good impression. The waiter arrives with the wine list and your date asks you to order a bottle for the two of you. You know virtually nothing about wine, but don’t want to look like an idiot or cheapskate. So, you quickly scan through the list and point to the most expensive bottle on the menu. “Ah, the Chateau Merlot,” booms the waiter with a big smile. “Very good, sir.” Notice what happened here? You chose the more expensive bottle to signal both: “I have good taste and I’m into you.” A plain-Jane phenomenon, the American economist Thorstein Veblen coined this as ‘Veblen Goods’ 2 or ‘conspicuous consumption’ more than a hundred years ago. A Rs 5,000 bottle of wine which tastes like a Rs 1,250 bottle might seem grossly ridiculous, but that’s how our brain and heart work.
How many people holding hands on Valentine’s Day this year will be holding hands next year? Not all obviously; simply because some of them will get tired of each other with time. Here the ‘Law of Diminishing Returns’ comes into play, which states that too much of a good thing eventually leads to a negative thing after some time. Also, remember that time when you called your friend ‘damaged goods’ after his traumatic break-up and then he publicized being ‘back on the market’ after a week?
This four-letter word is not one of the world’s biggest mysteries for no reason. Love has intrinsic value, i.e. we value love for what it is. So, this emotion, notorious as it is, sometimes refuses to abide by the established economic laws. Contrary to the ‘Law of Demand and Supply’, there are lots of unmarried men and women who long to fall in love and get married but cannot. Unlike objects like apples, cars and clothes, demand doesn’t translate into a purchase. The availability of people does not lead to love.
Love wields such a sceptre that it has an entire week – Valentine’s week – dedicated to it! On the eve of Valentine’s Day, couples stroll along the aisles of supermarkets and other open spaces, holding hands. Flowers are on sale and entertainment places booked. On Valentine’s Day, ‘red’ gains a lot of popularity. By Sunday, all that is gone and forgotten. This day, which originated out of darkness 3 has now birthed a full-fledged $27.4 billion 4 industry worldwide. Studies have shown that on the most romantic holiday of the year, celebrants are spending a record amount of $196.314 per person. With $2.4 billion 4 being spent on candy, $5.8 billion 4 on jewellery and $4.3 billion 4 on an evening out, love can really force people to dig deeper into their pockets.
In economics, companies have to incur variable costs during the busy season such as additional labour charges, raw material, electricity charges etc. 1-800 Flowers, a flower company founded in 1986 in the US told CNN that it hires 6,000 5 additional workers to help with the onslaught of orders during Valentine’s day. According to Statistic Brain, 144 million people sent Hallmark Cards in 20145. Industries dealing in chocolates, considered as aphrodisiacs maintain large stocks right before Valentine’s Day to meet the impending demand. Archies, Hallmark, The Hershey Company, Tiffany & Co., Necco and Vermont Teddy Bear are a few companies which earn super-profits in the short run, as sales shoot up exponentially during this festival of love. So, it’s safe to say that while couples are whispering sweet nothings to each other on Valentine’s Day, a handful of companies are watching big bucks roll in.
Reports show that it’s not just on Valentine’s Day that love fills coffers. The jewellery, confectionery, soft toy, lingerie, liquor, flowers, greeting card, clothing and several other industries depend largely on love for a bulk of their sales. Firms in Japan are making huge profits by relying on human ethos – feelings of honesty, trust and loyalty which fall under an umbrella term – love. Scientists have also proven that oxytocin and dopamine (chemical hormones governing love) levels of the brain are linked with economic growth 6.
If anything puts a price on love, it’s marriage – a fact made clear when Nobel Prize-winning economist Gary Becker7 started studying it in the field of behavioural economics in the early’70s.
Be it a big fat Indian wedding, sober English wedding in a church or a traditional African wedding ceremony, the wedding industry is one of the most profitable industries in the world. In some cities, the average price tag for a wedding is higher than the cost of a year in college 8. Statistics state that a person in India spends one-fifth of the wealth accumulated in a lifetime on a wedding ceremony 9. Kevin O’ Leary, better known as ‘Mr Wonderful’ in the show Shark Tank once said, “there is a lot we can learn from love when it comes to success in business.” Firmly believing in the same, he has invested in companies such as Honeyfund, a wedding gift and honeymoon registry business, LovePop, a 3D paper pop up greeting card company and O’Leary Wines, a wine business which caters to weddings and events. A major reason that weddings are a thriving business is because people often throw their budget and financial planning out of the window to have the dream wedding wearing a Sabyasachi dress and Swarovski tiara, like they’ve been planning it since they were nine.
Today, economists are studying a pragmatic view of love and relationships that strips emotions away and considers several economic factors, incentives, disincentives, opportunity costs and the business environment. Relying on economics may seem a callous and less romantic way to think about love, but “people have employed economics in romantic decision-making for generations”, says Wilfrid Laurier University economist, Tammy Schirle10. Researchers suggest that when the unemployment rate rises by one per cent in Canada, roughly 12,000 fewer Canadians get married10. This discovery throws light on the fact that market forces do help in shaping prominent decisions around love, such as whether or not to couple up. Stiff competition in the economy and the mounting demands that come with it often lead women to marry and have children late. “People often scoff and ask what love has to do with Economics. But after thirty seconds, the interconnection hits them like a nail on their head!” says Marina Adshade, author of the book ‘Dollars and Sex’ 10. When people rely on instincts and emotions solely, they’re often wrong. But if they look at a relationship through an economist’s eyes, they make more rational decisions.
Economic decisions are generally made using quantitative and qualitative data analysis, Java programs and charts. Our brain, however, doesn’t require charts and graphs, it inadvertently links love and economics. Understanding emotions through mathematical and economic ideas is beneficial for humans; this might be too much to swallow in the first instance but if we observe the world around us, we’d be speechless. So, love is more than the cheesy romantic way Bollywood portrays it. It’s more than hugs, warmth, marriage and emotions. It’s something which I request you to explain to me, once you understand what it truly is.
By Jayati Mody
References
1:https://www.semanticscholar.org/paper/The-Theme-of-Facts-and-Fancy-in-Hard-Times-by-Thoroddsen/d52387ceadd97acb3f4acf9c7f0f6ccb70f501fa
2:https://corporatefinanceinstitute.com/resources/knowledge/economics/veblen-good/
3:https://www.npr.org/2011/02/14/133693152/the-dark-origins-of-valentines-day
4:https://www.thebalance.com/happy-valentine-s-day-retailers-feeling-the-love-3306043
5:https://www.google.com/amp/s/www.businessinsider.com/companies-behind-valentines-day-industry-2014-2%3famp
6:https://hbr.org/2017/01/the-neuroscience-of-trust
7:https://www.britannica.com/biography/Gary-Becker
8:https://www.cnbc.com/2018/01/24/kevin-oleary-why-you-shouldnt-spend-a-lot-on-your-wedding.html
9:https://www.businessinsider.in/the-big-fat-wedding-industry-in-india-recap-of-2015-and-outlook-for-2016/articleshow/51008952.cms
10:https://nationalpost.com/news/canada/sexonomics-in-love-and-sex-its-economics-not-romance-at-the-root-of-major-relationship-decisions