Can These Economic Theories Save Your Marriage?

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Couples can learn a lot from economics, according to a new book called Spousonomics: Using Economics to Master Love, Marriage and Dirty Dishes.Marital problems can have many causes: emotional, psychological or even financial. But so far, few have dared to suggest that the roots of these problems can best be described by economics. Can the solution to that cat-and-dog fight over housework really be found in the teachings of Adam Smith and Joseph Schumpeter?

As improbable as it might sound, the authors of a readable new book, Spousonomics: Using Economics to Master Love, Marriage and Dirty Dishes, makes a convincing argument that that's indeed the case. The authors, Paula Szuchman, an editor at The Wall Street Journal, and Jenny Anderson, a Wall Street reporter for The New York Times, obviously embrace economic ideas passionately. They amusingly relate their everyday lives to these weighty prescriptions.
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Many of the economic problems described are actually phenomena of behavioral finance, which blends economics and psychology to explain some common investing mistakes. If it works for your portfolio, will it work with your husband?

Anderson, whose mother was a marriage counselor, has two children of her own and works 12-hour days at the Times, so she knows of what she speaks (and even found the spare time to write a book). When DailyFinance recently caught up with her, she used nine economic theories to help explain common causes of household angst.

1. Comparative advantage: "Many of us going into marriage thinking 50-50 is a natural split for dividing up the labor in the house," Anderson says. But that never works. The solution? Adam Smith's preachings of comparative advantage, in which workers do what they're best at -- or what they can do most efficiently. Managing a house and a family requires enough different tasks that it makes sense for couples to try to find different specializations, Anderson says. "Men aren't good at housework, but your options aren't dishes or nothing, your options are dishes or toilets," she says. "The goal is a lifetime of fairness, but on a day-to-day basis it doesn't work out that way."

2.Pareto efficiency: A market failure is when the free market doesn't assign a correct price to a good or service. Women often give up high-paying careers and get stuck at home providing not only child rearing, but also cooking and cleaning for free. "There is never a discussion of what that is worth, and as a result a lot of resentment would grow," Anderson says. The solution: Pareto efficiency, named after Italian economist Vilfredo Pareto, which seeks to improve the lot of one individual without hurting another. Anderson describes the theory, in essence, as the question, "What can I do that won't make me any worse off but could make my partner better off?" She adds, "It's useful to think of a dozen ways that you can make your partner happy that aren't going to make you any less happy."

3. Loss aversion: Just as investors often avoid selling falling stocks because they hate to lose, couples fail to end arguments simply because they hate to lose. In a survey mentioned in the book, 34% of couples admitted that they kept fighting even when they couldn't remember what they were fighting about. The solution: a 24-hour cooling off period. That solution may come from common sense more than economics, but it works, Anderson says.

4. The endowment effect: We tend to place irrationally high values on items that we already own. In marriage, that same concept often means we'll place an irrationally high value on the way things used to be. "We often default to doing things the way we've always done them," Anderson says. "A better solution is actively deciding to miss what you had and appreciate what you have." The book tells a hilarious anecdote about Szuchman clinging tenaciously to her cherished La-Z-Boy armchair, even though her husband found it plug ugly. In the end, they compromised by selling the armchair and buying a modern desk.

5. Supply and demand: The idea is simple enough: The more something costs, the less people want it. Improbably, Anderson claims this same concept also explains why couples aren't having enough sex -- it costs too much in energy and time. "The majority of people want more sex, but the problem was they were too tired," she said. "The solution is making it easier for themselves rather than making it harder." But who wants to plan their sex lives like they plan their 401(k) contributions? "If that's what it takes, then people need to acknowledge that's how they make it affordable," she says. "They schedule it and set goals for themselves so its not so complicated. In economic terms, that discussion is called transparency."

6. Moral hazard: This occurs when we take unnecessary risks because there are no consequences. For example, people with insurance tend to be more careless. With marriage, it's when people take their spouse for granted because they assume he or she isn't going anywhere. That assumption isn't necessarily true. "The answer rests in the divorce statistics: 50% of marriages end in divorce, so people clearly can go somewhere," Anderson says. The solution, she says, is to set rules and a regulatory framework so that the spouse feels more invested in the relationship, in the same way people with stock options tend not to steal from their companies.

7. Perverse incentives: An example of perverse incentives is when you try to force your husband to do some housework by refusing to clean at all. That might work, but it will more likely lead to a really dirty house. "Economic research shows that incentives like praise, trust and acknowledgement are powerful incentives and that punishment can often backfire," Anderson says. "Make sure there are no unintended consequences." The same economic rule applies to nagging. "We talked to a lot of couples who said that trust and praise are great, but they never seem to work and they always go to punishment." But that doesn't seem to work. Stick with the odds -- praise works more often than nagging, she says.

8. Inequity aversion: People are supposed to act in their own best interests, but often don't. Some people will quit a job because the guy in the next cubicle makes more money, even when it isn't in their best interest to be unemployed. Similarly, relationships have many unfair elements, such as when one spouse gets to have a high-paying career and the other stays home with the children. The solution is to make trade-offs, so both parties feel they are getting a reasonable, if not necessarily the best, deal.

9. Confirmation bias and overconfidence: This is when we look for evidence that confirms what we already think and don't look for contrary proof. "To buy a stock or a house or to be with a person, we look for all the things that are going to confirm for us things we want to believe," Anderson says. This often leads to bad investments, both in real estate and in relationships. The solution, she says, is Austrian economist Joseph Schumpeter's idea of creative destruction, or innovating in the face of change. "You think everything is going to be fine and you don't take precautions for a rainy day; you've picked the perfect person and nothing could ever go wrong." Well it often does, she says, so when it does, blow things up and innovate.
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