The Undercover Economist Answers Your Questions

DESCRIPTIONPhoto: Fran Monks Tim Harford

Last week we solicited your questions for Tim Harford, Financial Times columnist and author of, most recently, Dear Undercover Economist.

You asked him about engagement rings, midlife crises, and of course dental floss (he’s British). Thanks to all of you for the excellent questions and to Tim for his illuminating answers.

Q.

My wife and I started dating when we were 18 and were still young when we made the decision to get married. We’re in our young 30’s now. I told my wife that she should feel happy by how fondly I view her, as deciding to get married at a young age means that my opportunity cost of getting married was high, as I had a lot of years ahead of me. She said that’s the second most unromantic thing that I’ve ever said to her. Any suggestions on how I can reword this specific attempt of flattering her? — John

A.

I would recommend introducing your wife to the theory of real option valuation. Point out that the option to marry her was likely to remain open for many years after you originally met. By exercising the option so early, you showed your bride that the net present value of your relationship was large and positive and your uncertainty about the decision was very low. (Translation: your love burned with a strong and constant flame. But why would she need the translation?)

Q.

It doesn’t seem rational for a young man to give his girlfriend an expensive engagement ring when he proposes. My thought is that the most efficient use of that dollar is to invest it into something that a young couple would value most e.g. a down payment on a first house, etc. The diamond market is a monopoly and diamond prices are manipulated so that prices are always high. Can you construct a concise and logical argument that young men across the world can use to not buy diamond rings? After all, you already are offering the most valuable thing that you have (your heart) to your soon-to-be bride. In this age, why is a token like an overpriced rock still needed? — Hollins

A.

You have a point. Engagement rings took off in the U.S. when the courts refused to hear “breach of promise” lawsuits. These suits were brought by women who had slept with their fiancés and then been abandoned. These women were then less attractive marriage prospects for anyone else.

Naturally, such lawsuits were sensational fun for the newspapers, and eventually the courts put a stop to the whole thing. The problem then became: how could a young affianced couple have sex with each other when she had no recourse to the law if he changed his mind? Both of them might well want to, but for the lady the risks were pretty high. And so the institution of the engagement ring came about. Such rings are non-returnable, meaning that if the man breaks off the engagement he doesn’t get the ring back. The system discourages him from running off and provides automatic compensation if he does. Very clever.

Given all this history, I tend to agree with you. Tell your girlfriend that you doubt she is a virgin and don’t care much either way, and you will thus be spending the engagement ring money on something more useful. Be sure to let me know how it works out for you.

Q.

I have a mid-life crisis project that I would like to undertake. My estimated price tag of this project is $6,000. My wife says that it is too expensive, as she feels that it is quite silly. My response is: “well, it’s cheaper than a convertible car or a mistress.” Obviously, I haven’t done a good job laying out the true cost/value of spending this $6,000 on my project. How else can I present this? — Lenny

A.

Behavioral economists know that people are strongly responsive to the framing of a decision as a loss or a gain. (For instance, when spending $100 to snap up a jacket that is normally $150, are you spending $100 or saving $50?) Your disagreement here is similar. She thinks you are spending $6,000 on something daft. You think you are saving her money. You need her to frame the situation this way too. Bring home catalogues for expensive sports cars and leave them lying around. Push for the car, then withdraw to your original project (What is it? A dungeon? A miniature helipad? The mind boggles), ruefully saying that the sports car is just too pricey. Don’t mention the mistress — although if your wife is a Freakonomics blog reader, it may be too late for that piece of advice.

Q.

One of the big challenges in university departments is allocating desk space for graduate students. We have about 75 PhD students and 150 masters students and we’re short about 25 desks in our department. Every graduate student thinks he or she deserves a desk. Some professors insist that their students be granted desk space regardless of whether or not they need it. Those students might not want to work in the building or they are in their labs 99 percent of the time. So we have an inefficient allocation of resources. Here’s the problem: how do we get desk space, a commodity, to those who actually need it? — GW

A.

The economics department in Arizona State University’s College of Business faced almost exactly this problem in the mid 1980’s — there, the scarce resource was offices with windows — and used the obvious solution: an auction. Other departments used a variety of inferior methods, including seniority (despite the fact that many senior professors hardly used their offices) or “first come, first served” (meaning that people who hung around the chairman’s office doing nothing much had first choice). The main objection to auctions, of course, is that they undermine traditional hierarchies and reduce the opportunity for schmoozing and lobbying. You may not see this as an objection, but you can be sure that those at the top of traditional hierarchies do.

So I would recommend the auction. A note of caution, though: non-economists did not understand the merits of the proposal and it was treated as a scandal by the local press. Make sure you, like the good folk at ASU, put the money into a scholarship fund or other unimpeachable cause.

Q.

If a reasonably intelligent young person today is looking to make as big a contribution to society as possible, is he or she better off making a small impact on something very large (like federal policy) or picking one particular problem and spending a lifetime attacking it (like curing a disease or improving public education in a country or even city)? — Matt

A.

There is no obvious theoretical answer, but I would urge you to start small for three reasons. First, your idea of “small” seems to be curing a disease or fixing a city’s schools. Most of us would think this was “large,” so anything that keeps your feet on the ground works for me.

The other two reasons are more universal. One is the idea of impure altruism. Most of us do good deeds, but few of us do them solely out of a cool, calculated project to maximize the utility of humankind. We also do it because it makes us feel good and gives us something impressive to talk about on a night out with someone cute. My guess is that more modest projects give us more tangible progress, make us feel better, and encourage us to keep going. If you aimed too high your altruism might shrivel up pretty quickly.

Finally, smaller projects are easier to evaluate. That’s really important; if you don’t measure what works, you might be doing the wrong thing. It would be great to devote your life to making federal policy better, but without proper impact evaluation, you could easily spend your life making federal policy worse. Many people do; believe me, I’ve lived in Washington, D.C.

Q.

I am sharing a two-bedroom, two-bathroom apartment with a roommate. The rooms are unequal; there is a much larger master bedroom with an attached full bathroom and a second bedroom with a full bathroom in the hall.

The question concerns room assignment and appropriate splitting of rent. Total rent is fixed (say $1,300). I would like to come up with a process to determine who gets which bedroom/bathroom and a split of the rent which is appropriate, meaning that

1) group utility is maximized and
2) rent is split “fairly” (perhaps differences between WTP and actual payment should be equalized?).

Dave

A.

I would recommend the old cake-cutting method: you set the rent for each room, and your roommate chooses which room he’d prefer to take at the rent you’ve set. This, by the way, gives you a small advantage: if you think he’s really committed to privacy, you can push the rent up on the master bedroom in the knowledge that he’ll take it; if you think he’s out to save money, you can get the large bedroom for only a small extra rent. That should solve your problem, but other Freakonomics readers may wish to click on the links to discover what to do with three rooms, or even with eight rooms. (Also: here’s an earlier discussion on this topic.)

Q.

My house, which I bought at the height of the boom and also while under duress (read: homelessness) has lost $60,000 in value. I’ve never liked my home nor my neighborhood, and I’m desperate to move, but if I try to sell now (or even in six months?) I’ll lose every single penny I put into it and then some, when you consider taxes, commissions, etc. My thought is to rent it out, go rent an apartment myself, and then sell the house once things get better. What say you? Keep in mind, I hate everything about where I live. I’ve been miserable for 2.5 years and I don’t want to lose my shirt. — I Hate Real Estate

A.

I sympathize with your situation, but you’re thinking about this the wrong way. You say you don’t want to lose your shirt, but you already have: $60,000 worth. Nothing you do now is going to change that.

Here’s another way to think about the problem. Imagine you had no house. Should you take out a mortgage and buy an investment property in an area you hate with the hope that the combination of rent and price appreciation will make this a sound investment? I don’t know the answer, but you need to realize that (taxes and commissions aside) it is the same question as the one you have asked me. You need to forget the painful fact that you have lost $60,000 and simply focus on whether your current house, at its current price, is a good investment. (And if you think an economist can answer that question, I admire your optimism.)

P.S. If you hate it so much, yes, you should move if you can, whether or not you actually sell the house.

Q.

Do you floss? How often? — Dutch

A.

I floss only occasionally, for two reasons. First, the dental profession has failed to provide a carefully reasoned, cost-benefit analysis of flossing. Second, I’m British and we like to maintain our tradition of bad teeth.


Jeremy

this guy's cool...

Jon

I think the tradition regarding rings in broken engagements is that the woman returns the ring: she gets to throw it in the man's face before storming out.

At least, it is going by every TV show and film I see.

michelle

Re: Flattery

Using the word 'fond' is really insulting. It makes people feel old.

A possible rewording is, "The life I've had with you has been so wonderful. I do not wish for any other life than the life i have with you."
(I think this is a really insincere thing to say, 98% of the time.)

A more sincere thing is, "Life with you is a happy life, and I cannot imagine that I'd be happier with anyone else. Marrying you I do not regret."

Tyler

#4: considering "mark to market" is the standard (and law) of financial firm reporting, I would say that yes, unrealized gains and losses are real, and you have actually made or lost money. An investment is always worth what someone is willing to pay for it, not what you paid for it.

Al Marsh

I got engaged while I was still a student and got married within my first year of full time work. So I had a good excuse for getting a cheap ring (so there's one advantage to getting married early not mentioned above). Having said that, I suppose it was still expensive, relative to my (non-existent) income at the time, so perhaps it wasn't so smart. The important thing is, though, that I loved my partner then and still do.

Jim

My wife and I married (first and only marriage for both of us) in our mid thirties. We were both fairly well established.

We wanted the tradition of the wedding ring, but we wanted equity as well.

She invested what I had spent for the rings into a mutual fund owned jointly by both of us. Each month we each contribute $50 to it.

We call it our "second honeymoony money" It's current value, while varying based upon market conditions is about $25-30K.

mare

Hey all, it's Little Miss $60 k. loss here. Thank You all (+ Tim) for your replies. FWIW, it's comforting to know that I'm not alone.

We will probably rent the house out in 5 months, then try to sell in a year. During that time, we'll rent a place we like better.

All this financial turmoil has really caused me to do some soul-searching, and I learned that 1) I was much happier before I owned property (even my 1st one, during good times), and 2) I don't want to own property!

Silver lining, I suppose?

Liz

I have been arguing with my boyfriend of many years that he should not get me an engagement ring. A ring's main attraction is nothing more than hardened, shiny carbon signifying that he spent his money poorly. The cost of an engagement ring could certainly be more wisely spent on any number of wedding costs or on furnishing our new life together. With engagement rings costing between $800 - $15,000, I would be far more impressed if I was presented with a nest egg to setup our new home rather than a piece of jewelry which provides me with nothing but some weight on my hand and a bit of sparkle. After all, we will be exchanging wedding bands. If he still wants an outer symbol of our engagement, a necklace or any other significantly less expensive piece of jewelry that actually has meaning (relating to an important event or memory we share) seems more sensible and far more romantic to me. It shows he took the time to consider our past together, not just how large a stone he can afford.

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robu

Haven't we learned anything over the years?! I suspect that when Peter Stuyvesant approached the local Chief asking to buy Manhatten for $24 in beads, the Chief's wife was whispering in his ear "ooo, beads! I love beads! I want the beads! The others will be envious of me!" A diamond ring is just a bauble that others ooh and aah over and has no real value....

I married the woman who actual said "I don't want a ring, I'd rather have a good roof over my head." Although she has her bead moments too!

nSH

I strongly advise women not to listen to the no engagement ring theory, for many of the reasons Maurie Beck outlined.

While insisting on a Diamond, particularly from a brand name outlet is nonsensical, insisting a man make some symbolic economic investment in you is good common sense.

Your mother wasn't being sexist and old-fashioned but speaking from experience. I don't argue that buying a ring will guarantee monogamy or a high-quality relationship, but it does indicate seriousness.

Men will pursue women that they are not very interested in simply because, well, we're there. They will not however put money down on that relationship.

His taking you out to dinner, buying presents etc. indicates you are something more than a convenience—assuming normal financial variants. How the super rich indicate seriousness is beyond me.

For some strange reason, to get men to invest in a relationship they have to be willing to invest economically in a relationship.

This doesn't mean he always has to take you to the latest haunt of the rich and famous, unless he too is rich and famous. It must be commensurate with his income, his debts and general spending pattern. If he's profligate, he can't be frugal with you, if he's frugal, that's OK so long as he is a little more generous with you than himself. A artist living in a garrett taking you for a bagel and coffee might indicate more seriousness than a hedge fund manager taking you to a mid-grade Italian joint.

And once you get to the ring issue, you need to know how willing will he be to invest in you and your joint progeny. Just because he's wiling to be a husband doesn't mean he's willing to be a good one.

If you wish to forgo the ring for a house or school, pay dutch later in the relationship etc., that's fine but you have to instigate it —after he's shown his willingness to pay. Plus, it is still advisable to let him treat you now again so he remembers he values you.

Yes, all you now outraged men, it does seem unfair. But it is more unfair that you have almost all your life to become parents, and not only does your appeal to the opposite sex not decrease with age but might increase since you might have more resources to share. Women do not have the luxury of time, so must sort suitors more quickly.

But if you really can't stand the thought of paying for what you deem is a useless item to prove love, there are other ways. Why not put the money into a college fund for your future children (assuming she wants them someday)? Pay for HER school loan, or for her to start a business etc. etc. Practical gifts yes but still an investment in her and her alone.

For whatever reason, men are not inclined to invest economic

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Truthseeker1

I broke the engagement and did not get the ring back. My former fiancee also took the bulk of the money out of our small joint account, most of which was gifts from my family and friends.

If I had any initial doubt about whether my decision to break the engagement was right, her subsequent actions made that doubt go away. A very small price for me to get away from a bad woman.

Maurie Beck

Hi nSH,

Thanks for the reference. I have a few comments concerning your comment and the essay in general.

Both your comments and the Mr. Harford's approach are from a normative values perspecitive (i.e. right and wrong). I was taking a scientific perspective. Making an investment (men) or requiring one (women) is a good strategy to ensure honest behavior. The type of investment is governed more by cultural practices. As a man, a ring means very little to me and I'd rather spend the money on something more meaningful. Other cultures may mandate goats or cattle or any other resource.

There is one other point I'd like to make. Some people reading this may wonder why men are required to make the investment and not women. In many organimsms that reproduce sexually, maternal investment in offspring is often much higher than paternal investment. That is why female choice is so prevalent, but male choice is not. However, in species where paternal investment is significant, sometimes we see role reversals. For example, male seahorses actually brood the offspring and make the choice on whose offspring he broods.

In humans, there is significant paternal investment along with that provided by the mother. So why, you might ask, why are the males required to provide the ring? Primarily because a man's initial investment (sperm) is inconsequential compared to a woman's (the costs of pregnancy). It should also be noted that in the courting phase between men and women, both sides often provide gifts or resources, which only happens because there is mutual investment in future offspring. This does not happen in species where the majority investment is maternal.

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michelle

Rings, are important to many women.

I'd want a great ring, it would matter a lot to me. I just don't think that proposals are all that serious or sincere, if a ring that shows investment is not provided.

Casey

Phenomenal answers, I dig this new addition. At least twice per month it needs to happen.

Well done, Tim.

GW in IN

Thanks to all for the feedback on the grad-student desk-space issue.

On a side note, my wife and I have been together for 11 years, married for 6. We opted against an engagement ring (we barely even discussed it) because we were already effectively married by living together for 4 years with joint accounts and expenses, so it seemed like a waste of money to both of us. That made our sensible 2004 Corolla more affordable, and it's served us much better than any diamond ring these last six years.

Plus, something about a ring reminded us of a brideprice--an unappealing thought from a different time and culture. (However, every time my father-in-law told us to buy property, already priced beyond our means in SoCal in those years, I asked him for a dowry. He offered me some chickens from his farm.)

We also opted against wedding bands. Our decision was affirmed by my wife's hippie aunt who called them "symbols of bondage."

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Entis

We want more! This is one of the best posts yet.

Chris

Regarding engagement rings: A story... Years ago a submarine buddy asked to borrow a sizable (for me and for the time) sum so that he could buy his wife the necklace she had always wanted. For many years the shipmate had ignored his wife's 'need' for such a necklace. Upon being told, "I want a divorce" the boat sailor changed his attitude about pearls.

The necklace didn't save the marriage but it taught me an important lesson: Because it isn't important to me doesn't mean it that it isn't important.

I've tried with some success to agree with every material and experiential wish of my wife's. It's a pretty nice way to live, and I wouldn't have had this insight to be responsive with being judgmental were it not for my encounter with the insensitive shipmate.

Didn't Al Einstein say, "Not everything worth counting can be counted?"

Nitin

excellent stuff. i'm a regular reader at Tim's FT blog, but this was real entertaining. must be the diversity of readers/questions here at Freakonomics. btw, he hardly gets any comments for some good pieces of work over at the FT page.

JohnDTP

Regarding the auction solution for a multi-room rental, it seems to me that your cake-slice method is over-elaborate and might lead to prolonged arguments. Would it not be simpler to just do the following (regardless of the number of rooms).
1. Calculate the average cost of a room. Start the bidding there. Anyone can bid on any room as long as the bid is $10 or £5 above the previous bid. Whoever makes the winning bid gets that room at that price.
2. Recalculate the average price for the remaining rooms. (Eventually this could be a negative figure.) Start a new round for bidders who don't yet have rooms. There will be 1 less round than rooms.
3. In the unlikely case that no one is willing to make a bid when there is more than 1 room left, then the remaining rooms go for the average price by lot. (Presumably none of the bidders thinks any remaining room is worth more than the remaining average.)

That seems simple and fair.

As an added fillip, if the roommates think that a household fund for joint expenses (such as cleaning supplies) would be useful, the amount of the fund can simply be added to the overall cost before calculating the average for the first round. That avoids having to make 2 different assessments.

Lastly, if there were more than 2 rooms, I would do a mock auction first. That way people would see how the bidding would eventually turn out, more or less. That experience would help them temper their bids so that everyone would be more satisfied by the eventual result and no one would get undue advantage from being good a predicting games.

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RR

"Such rings are non-returnable, meaning that if the man breaks off the engagement he doesn't get the ring back."

That's not true. The man retains a reverter interest in the ring until the actual marriage at which point it becomes the wife's non-marital property.