Thursday, February 13, 2014

A nerd's eye view of marriage

Some people marry for love and others wind up marrying for more down-to-earth reasons, as per Jane Austen in Pride and Prejudice:
It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.

However little known the feelings or views of such a man may be on his first entering a neighbourhood, this truth is so well fixed in the minds of the surrounding families, that he is considered as the rightful property of some one or other of their daughters.
On this Valentine's Day, I highlight analysis by Bryan Caplan on the economics of marriage, which concluded that two people can benefit from living together than apart:
If you share your home with a spouse, you don't have as much space for yourself as a solitary occupant of the same property. But both of you probably enjoy the benefits of more than half a house. If a couple owns one car, similarly, both have more than half a car. Even food is semi-rival, as the classic "You gonna eat that?" question proves.

Mathematically, married individuals' utility looks something like this: 
U=Family Income/2a

a=1 corresponds to pure rivalry: Partners pool their income, buy stuff, then separately consume their half. a=0 corresponds to pure non-rivalry: Partners pool their income, buy stuff, then jointly consume the whole.
After writing that blog post, Caplan found that he had reproduced work by Buhmann et al., "Equivalence Scales, Well-Being, Inequality, and Poverty" (Review of Income and Wealth, 1988). How much each partner gains depends on the degree of cooperation and sharing. I won't go into the details of the math, but Caplan went on to test out the model under assumptions of sharing and cooperation. The interesting thing he found was that both partners gained under the arrangement [emphasis added]:
Imagine two singles: One earns $60,000 per year; the other earns $40,000 per year. Here's happens to their effective consumption if they marry and share equally...

As you'd expect, the low-earning spouse makes out like a bandit. The surprise: The high-earning spouse gains as well - for all four ways to estimate real-world rivalry. If consumption were 100% rival, in contrast, the high-earner would lose $10,000 - precisely the amount the low earner gains.
Trulia more or less echoed the same conclusion (via Marketwatch):
New research shows that a couple can pocket thousands of dollars by trading in separate one-bedroom apartments for a two- or even three-bedroom pad.

Couples can save 35% of their combined monthly rent by switching to a two-bedroom apartment and 12% for a three-bedroom apartment, according to real-estate website Trulia, which analyzed its nationwide rental listings. Jed Kolko, chief economist at Trulia, compared apartments in the same building—instead of the median rents for apartments in the same or even a nearby neighborhood—to make sure the comparisons were apples to apples. (By moving into a one-bedroom apartment, they obviously save 50% of the monthly rent.) “It might not be the romantic discussion you expected,” Kolko says, “but these savings could make the proposal a little more compelling.”
I think what is lacking in this model is the dimension of time. This coldly analytical approach could be used to model the behavior of roommates. What is different is that roommates are generally not committed to staying together for an indefinite period of time.

The benefits of sharing rise as time horizon rises. Roommates may agree to undertake capital expenditures, such as a washing machine, under some sort of formal financial arrangement (I buy it, you pay me your half when you leave), but what roommates would agree to buy a long-lived asset like a house and correspondingly assume a long-lived liability like a mortgage together (not to mention other commitments with long time horizons like bringing up children)?

It is those kinds of benefits that makes the institution of marriage stand out. I have been married to Mrs. Humble Student of the Markets for nearly two decades and we have known each other for about three decades. I can attest to that I consider myself fortunate to have been with her for all this time and derived  a great deal of benefit during this period.

To my wife - thank you for putting up with me for all those years.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this blog constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or I may hold or control long or short positions in the securities or instruments mentioned.


Alki G said...

Thank you for your blog. It is very inspiring and informative.

keithpiccirillo said...

You know your marriage is strong when the biggest thing you quarrel about are the methodologies we use to shovel snow.
Anyhow, as we were married in June of 1985 we have a decade more together.
Over time we become more connected in all facets of life, starting with the net worth and value systems that must be shared and of course constantly communicating feelings and wants/needs are an ongoing running battle.
Marriage has stages over decades, and I have been much more better the past few than the first one for handling early fatherhood and just growing into "knowing" and being known by another.
The chocolate heart was tapped into a day early here, as she deemed it necessary to obtain the energy from all the shoveling of snow.
Marriage can at times be about power (she worries about money while get concerned about money) and relinquishing of power and knowing just when to pick spots to use it, but mostly being positive, laughing and using humour a lot, and not saying hurtful things has worked well. No regrets from either of us, we are appendage like yet not joined at the hip.

Sentiment_Al said...

Happy Valentines Day! And thank you for your blog -- I never miss a post!