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Economics->MBA->Analyst->Business aaahh... Looks like a damn CV. Let me try again. Foodie-Moviefreak-Travel & Photography enthusiast->and of course a Blogger.

Wednesday, October 7, 2009

Economics of Relationships

Before you read further let me make a disclaimer! The text written below has multiple connotations, interpretations and significance which would vary at an individual level. It might appear to be the stupidest thought to a few, wacky to some and geeky to most people. And there might be a small section of people who understand something of game theory and probably would be able to understand the pervasiveness of economics and its application not only in business but also in personal life.
But as usual it doesn’t offer any solution to the problem. It identifies it and goes deep into the rational of why the problem arises at the first place. Probably identification is the first step towards reaching a solution.
At the same time it also deals with the rationale of the irrationality of the so called rational human behavior.
It tries to understand why some good people remain unhappy in relationships while many not so good people are found to be much happier and relaxed.
Let’s first understand the application of game theory in the world of relationships and seek an answer to the observed behavior of people around us.

Now in the above matrix, if one out of the two is not serious, while the other is the resulting pay off is highly unfavorable to the one who is serious. This is very evident and self explanatory. It’s always the one who is serious and gets dumped cries, while the other partner after having all the fun and frolic moves ahead. Now as a logical human behavior both partners should be serious and committed to each other to attain maximum satisfaction and utility. In economic terms both being serious should have been the “Desired Equilibrium”
However here lies the catch and a proof that the behavior of people might not be always rational and there will be various occasions when they settle for the 2nd best optimal solution rather than the best available opportunity.
In this case there is an intrinsic fear in both the partners that if the latter is not serious, the former would have to pay a heavy price. And hence both of them end up being not so serious in their relationship. This leaves them with no real gains and utility.
We all know that the best utility ad highest level of satisfaction would have been achieved only when both the partners are serious and that is the ideal and rational expected behavior. However the application of game theory helps us understand the irrationality in the otherwise rational human behavior.
Thus we see how pervasive Economics as a discipline is. For all those who have no background in economics this was possibly the easiest explanation of the application of game theory in our everyday human life.
This is what I call as “Economics of Relationships”

P.S. The origin of thought came after I saw Aanand Ji devastated... :P


Priyanka said...

Economics fits everywhere.....
even in something as complex as relationships
thats how they are
sometimes a zero sum game
sometimes profitable
sometimes leading to a loss
sometimes much more.....

Ana said...

hey.......v learn eco so v can understand it much better....but ur blog is so interesting even if who doesnt knw eco i think will b able to get little much of it.but he or she will definately get this that to attain max utility in relationship its always better to b commited to each other..otherwise there is always a fix cost that u need to b incurred wtout even knwing it wen u betray him or her

Sriram Agrawal said...

both if u are so accurate in whatever u mentioned :)

Priyanka said...

In a sided relationship all you have is SUNK COST