Published in The Edge Malaysia, 2 - 8 May 2016.
“So, what is going to happen to Malaysia’s GDP growth this year?”
“Will Bank Negara raise interest rates in the upcoming MPC meeting?”
“How badly will GST impact inflation? Be honest.”
Introduce yourself as an economist and that is what people commonly ask you. It makes sense – after all, it is natural for someone to assume that an economist would be an expert on economic issues and, typically, economic issues such as interest rates, GDP, GST and so on are salient issues of the day. Yet, as those working in the field of Economics would tell you, there are a lot more insights to which economic analysis can add then just the traditional economic topics. A man named Gary Becker is largely responsible for that.
The late, great Gary Becker was a Nobel Prize-winning economist who was a pioneer in introducing economic analysis into topics which were traditionally considered to fall under the domain of sociology including racial discrimination, crime and drug addiction. His contributions to the field lay primarily in the idea that negative human behavior – committing crime, taking drugs, being racist – could be seen as rational and utility maximising. Therefore, it was not just home sapiens who committed crimes, it was the very rational homo economicus as well.
While crime, addiction, discrimination and even murder can be properly contextualised within the framework of Economics, perhaps the greatest test of economic analysis is as follows. Can Economics show how, the most irrational and illogical – by conventional wisdom, anyway – emotion that humans have can be rational and utility maximising? That most irrational and illogical emotion that we have is love.
Love makes people do incredible, sometimes ridiculous things. It can make kings and vagabonds believe the very best, but it can also cause untold pain and suffering. For instance, in Greek mythology, the Greek King Menelaus waged war on the Kingdom of Troy, bringing about the Trojan War, because Paris, the Prince of Troy, had stolen King Menelaus’ wife, Helen of Sparta (and then Troy). Romeo and Juliet is one of literature’s greatest love tragedies. Harry Potter managed to defeat Lord Voldemort because of love. In real life, Shah Jahan so loved his wife Mumtaz Mahal that when she died, he built one of the history’s greatest architectural masterpieces, the Taj Mahal, to serve as the final resting place of his wife.
While these examples are on the extreme end, one can certainly think of absurd things that one has done in the name of love. Thus, the reader may be asking, how can economic analysis justify love as an action undertaken by homo economicus? It does seem a little irrational to wage a war just because one’s spouse committed adultery. However, taking the standard definition of economics – maximising welfare subject to limited resources – there is one view that holds love to simply be another case of economic rationality.
Interdependent utility functions (or, if you prefer, ‘happiness’ functions) are functions where the pleasure one gets from one’s activities is dependent upon the happiness of another. For example, a lady may get utility, or happiness, if she knows that her husband is having a good time singing his heart out at a karaoke bar. She does not have to enjoy singing karaoke, but her overall happiness is still increased because her happiness is dependent upon her husband’s. This is perhaps best explained by Henry Spearman, the fictional economist cum detective, who says, “When I say ‘I love you,’ it means my utility of happiness is intertwined with yours.” Of course, the Beatles probably would not sell so many records if their song was titled, “Her utility of happiness is intertwined with yours.”
If it is true that when you love someone, their happiness becomes your happiness (though sometimes, it might be at the expense of, unfortunately), then it is therefore rational to do seemingly illogical and irrational things just to make that one person happy. How many of us would never wait in line for hours to purchase something we like but we would gladly do so to purchase something our partner likes? Or how many of us would never buy or wear a particular item of clothing but if our partner gave it to us as a gift, how many of us would think to not wear it? By making others happy, we make ourselves happy. And if by some good fortune that person’s utility of happiness is also intertwined with ours, then it is a virtuous cycle that keeps building on itself.
Therefore, interdependent utility functions also lead us to take our chances with incredible low probabilities. There are approximately 7.5 billion people in the world. By the well-ordered principle of Mathematics, there is, by definition, a person who is most ideal for me in the world and a person who is least ideal. Everyone else falls, in some order, in between. Now, what are the odds that the person I marry is also the person who is most ideal for me in the world? The answer is about 1 in 7.5 billion. Not great. Yet, we still believe that that is the case despite all probability of the opposite. All we know is that our partner’s happiness increases our utility the most of everyone we know. Even if we limit the number of people to just the people we know, it is still ‘rational’ – we are still making our ideal choice based on ‘bounded rationality’ (bounded by information, time and so on).
Perhaps this is all silly to the reader. Perhaps love is truly illogical and irrational. Or perhaps this is just an economist’s attempt to provide some economic analysis to his upcoming nuptials. At the time of publication, I will be married to my 1 in 7.5 billion. I will take those chances as long as it is with this person. It may be an improbable bet to make, but I have faith. Making her happy increases my utility more than anyone I know. To LS, my utility of happiness is intertwined with yours. Just don’t ask me to put it in a song.