Monday, April 30, 2007

Breaking News

Everybody knows, or has known, at least one couple in a romantic relationship that has lasted long past its expiration date. Their friends all know that they’re really not right for each other, that their relationship is dysfunctional in various ways, that at least one of them could do better on the singles market. And yet they stay together. Why?

The conventional wisdom, I think, is that relationships last too long because of cognitive biases and errors. Some people might remain because of simple status quo bias. Others may be too pessimistic about their outside prospects. Yet others focus myopically on the present relative to the future, thus giving insufficient weight to the gains from a better partner who may take a long time to find.

While these are all contributing factors, I think a more rational mechanism is also to blame. When people enter a relationship, they go through what Oliver Williamson termed the Fundamental Transformation. They invest in relationship-specific assets such as knowledge of each other’s tastes and quirks, routines that allow them to coordinate their schedules, and memories of special moments in their history. If they eventually move in together, the joint living space is yet another relationship-specific asset that requires a substantial investment in packing, decorating, and so on.

The value of all these assets would depreciate substantially upon the relationship’s demise. Knowledge of tastes and quirks goes unused, routines become obsolete, memories go sour. And for those who have moved in together, breaking up with each other often means breaking up with the home as well.

The existence of relationship-specific assets raises a current partner’s value relative to potential mates on the singles market. That means two things. First, we shouldn’t be surprised to see people stay with their current partners even when they could probably “do better,” because doing so means abandoning all those assets and (eventually) investing in new ones.

Second, we should expect to see some ex-post opportunism. Relationship-specific assets give both partners partial protection against market competition, which means they can reduce their contributions and still remain attached. Partners may let themselves get fat, shave less frequently, refuse to have sex as often, cut back on household chores, etc. They can do this as long as the reductions in quality are not so great as to swamp the value attributable to the relationship-specific assets.

Some opportunistic quality reductions can even make the relationship more resistant to a break-up. A partner who lets his appearance degrade (say, by getting fat) will have fewer desirable options on the singles market, and therefore will be less inclined to end the current relationship. And this raises a troubling question. You might think it’s a great thing for you if your mate diligently maintains his appearance, or starts working harder to improve it by (say) dieting and exercising more often. But these efforts could actually signal a lack of commitment to the relationship and a willingness to seek out other partners! If so, then a little bit of “relationship weight” might actually be your friend.

[Credit-Where-Credit-Is-Due Department: David Friedman applies the concept of asset specificity to marriage in Chapter 13 of Law’s Order, and that’s what first got me thinking of romantic relationships in these terms.]

[This-Blog-Is-Not-A-Personal-Diary Department: This post is not inspired by… oh, just read this, point #3.]


Gil said...

It seems like many of the things you're calling relationship-specific assets are more usefully considered sunk costs.

Glen Whitman said...

Yes, they are sunk costs, but they are not just sunk costs. They are sunk costs that create assets whose value is contingent on continuation of a specific relationship. Other sunk costs create assets with non-specific value -- for instance, a college education.

Gil said...

Right, but why is it rational to let my investment in these relationship-specific assets affect my decisions for the future?

I'm not seeing why my knowlege of somebody's schedule and preferences should affect my decision about whether to stay with them.

Should I keep an old, crappy, piece of software that I know how to use, if there are better options available whose price and learning-curve are justified by better features?

Should that decision be affected by how well I know the software that I have (or by how hard it was to acquire that knowlege)?

Glen Whitman said...

The notion that sunk costs should not affect decisions is a gross simplification. The correct lesson is that sunk costs should not be included among the marginal costs of a subsequent decision. But sunk costs, or more precisely the assets they create, can very much affect the returns from different subsequent choices.

To take your example of software: Say I already own a graphics program. It cost me $200. Now there's a new and improved graphics program that will cost $250. In deciding whether to buy the new program, the $200 I spent on the earlier version is irrelevant. But what's very relevant is that I already have a graphics program. In order to justify buying the new program, its added value over the old program must exceed its total price of $250.

Anonymous said...

I might be taking this analogy too far but, the situation is more akin to

1. You have a graphics program. 2. You create 10000 files with that program.
3. Your program is not doing everything you want it do, far from it.
4. If you give up the old program, you will ahve to spend months and possibly years looking for another one.
5. You will have to recreate all 10,000 files from scratch.

Anonymous said...

Should I keep an old, crappy, piece of software that I know how to use, if there are better options available whose price and learning-curve are justified by better features?

This is basically the business model of Windows.

Unknown said...

Didn't Proust say that marriages stay together largely through our fear of infidelity by our other partner and the steps we take to make such straying less likely? This seems to be the other side of the coin.

Or perhaps people who invest in improving their appearance actually want to look and feel better for themselves and the partners they love.

Hey said...

gil: the relationship specific assets mean that post-breakup you end up at a state of negative worth, rather than zero. Your current relationship has added value beyond the mate aspect - knwoledge and understanding of business dilemmas, relationships with friends and associates, extended network of contacts, etc. Any serious relationship is not just between two people, it includes their entire networks and has substantial, though often hidden, added benefits. Older, less modern understandings of marriage contain a great degree of truth behind them, especially when considering ending a relationship. Just because we've come to the belief that marriage shouldn't subordinate personal interests to the commercial and political interests of a marriage, we shouldn't ignore that their are other interests and concerns that evolve from a relationship.

There is a reason why we look down on those who trade in their old wife for a trophy-wife of questionable intellience. Sure she's hot and young and more "adventurous", but she doesn't bring anything to the table outside of personal benefits. The sugar daddy brings along all sorts of other benefits (hence why she's willing to put up with his jowly, wrinkly ass) and he's overly focused on the merely personal issues rather than the extended issues. Frequently (though of course not all the time) the loss in the extended network is more severe than the increase in personal benefits resulting from a nubile, adventurous playmate.

Rupert Murdoch provides a great example of how the newer model is creating dramatic problems for his other relationships, including affecting the succession at News Corp and the ownership trusts that keep Rupert in control.

Anonymous said...

Well everyone knows (or should know) that wives feed up their husbands to make them fat so that they are no longer appealing to other women. If you say to your wife, "No, no apple pie for me," or some such, a deep instinct will tell her, and maybe not erroneously, that she hasn't snared you completely.

Anonymous said...

I seem to recall that there were some studies showing that landlords tend to keep rents at below-market prices for good tenants of long standing, for precisely the same reason. In a nutshell, it's a hassle to start over again.

Bart Hall (Kansas, USA) said...

There's something quite depressing about this 'consumer' approach to relationship, even though I greatly enjoy the economic analysis.

Marriage, at least, is intended to be that place where we work out all sorts of weird, painful, or difficult things from our past, as well as that place in which we finally develop the key aspect of MATURITY -- the ability to put somebody else first.

A consumer approach to marriage continually avoids those key components, producing a generation of perpetual adolescents, persistently self-focused and generally mal-adjusted to adult life.

Like, say, Baby Boomers.

The irony is that up until a couple of generations ago marriage was predominantly an economic arrangement between individuals or families.

If marriage has now been transformed into something to be 'fulfilling,' then we ought at least to have the common sense -- and the grace -- to define that fulfillment as maturity, rather than perpetual adolescent arrogance and self-absorption.

There are two kinds of marriages: hard marriages and bad marriages.

Love is not a feeling, it is a verb.

Going for the easy feelings, especially again and again, is just plain childish, and perhaps even psychotic.

Anonymous said...

Intersting post. You should read, if you haven't already, the work of social psychologist Caryl Rusbult, formerly of Univ. of North Carolina now at a univeristy in the netherlands. She has used interdependence theory and research to describe the process of commitment in a relationship in much the way you have and has done extensive emprical research to back it up. (and this was 15 years ago)

Anonymous said...

Just a small comment on what Glen said vis a vis software investment. I'm in software sales - won't say for whom - so I know where of I speak.

I have seen people recommend software puchases / decisions based on their familiarity / comfort w/ a particular product or platform wholly because it was in their comfort zone. They have justified it based on the "ramp-up" costs of "education" on the new platform, but without regard to whether said platform really provided a better, more cost efficient or flexible platform for their company.

To whit, the decision was based on the comfort zone of the influencers, not on the best interests of their company.

And yes, I may be guilty of sour grapes.

Michael Greinecker said...

I agree that relation specific investments play an important role in relationships, but I think most outside observers are accounting for that. So a relationship that seems to be defunct to mos is probably actually defunct.

Andy W said...

brilliant, well done, loved it.

Anonymous said...

wow!it’s great to read articles that come directly from the heart. Thanks for sharing