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The Economics of Love

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Human affection has an enormous effect on decision-making, but as something so driven by emotion and that manifests itself in often unquantifiable ways, love is difficult to pin down in a rigorous way.

Still, there are two approaches that show up some interesting results. Firstly, how does love play out on consumer behaviour? Whether it’s people in wedlock and cohabiting relationships sharing every penny with each other or single people shelling out to woo a special someone, love-related spending is a rich topic. Secondly, what might a behavioural economics-inspired approach to love show up? Relationships and dating can be thought of as markets, which are each affected in their own way by things like technology and capital.

Spending Affection: The Valentine’s Day Phenomenon

When it comes to putting a number on how love affects people’s spending habits, one of the first things to spring to mind for many is Valentine’s Day. It is, of course, a small part of the myriad of intangible ways in which affection changes people’s consumer behaviour, but the enormous spike in retail spending is impossible to ignore.

Some may object to speaking of dollar revenue and true love in the same breath. But what started as a Western Christian celebration didn’t turn into a major economic event until it became associated with ordinary romance. Sometime after the legendary English poet Chaucer spurred its transformation from saint-honouring feast day to celebration of love, people took it upon themselves to bring gifts into the celebrations. In the 18th Century, this crystallised into the culture of offering flowers, confectionery and Valentine cards to the object of one’s desires – long before the advent of today’s marketing machines.

$19.7bn Total Valentine’s Day spending in the US last year

Advertising strategies are arguably what leveraged this into a consumerist phenomenon though – one that is still growing, given how Valentine’s spending keeps outstripping inflation and wage growth. Even this century, Valentine’s Day spending in the US is soaring, having risen from $12.8bn in 2004 to $19.7bn in 2016 – a whopping 54% increase.

Many are of the view that much of Valentine’s Day’s financial success is due more to clever marketing than lasting expressions of affection. But this is no secret anymore, and doesn’t stop people from forking out big in the name of love. Putting it into per capita terms shows just how much money people put into making a statement.

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Interesting results also come from breaking it down by gender. Wallets take more of a hit than purses, which could be down to a variety of factors from the holiday’s bent towards ‘traditional’ relationships to the more expensive nature of the things women typically receive (such as jewellery).

It also suggests that men (American men, at least) may be slightly more sensitive to their economic circumstances when it comes to Valentine’s gifts: note the drop from the financial crisis to its aftermath in men’s average spending (about 17% between 2008-2010), compared to the same period for women (about 15%).

$96 The gap between men’s and women’s Valentine’s spending last year

A more curious result comes from looking at the changing difference between men and women’s spending. Ten years ago, men spent $71 more than women for Valentine’s Day, but by last year the gap had grown to $96. Men are spending more and more compared to women – despite a shift in wider society away from traditional gender dynamics, where women have seen their earnings grow as a proportion of men’s and are less expected to play a passive role in household expenditure and relationships.

It would seem that Valentine’s Day at the same time reflects wider trends in how people spend money on their loved ones yet at the same time defies some of them.

Supplying the Love-in

All this spending doesn’t happen in a vacuum, though: businesses from the restauranteurs to printing presses have to ramp up production to cater for a very specific set of love-related demands at the same time every year.

The biggest winners – apart from the lucky lovers being treated, of course – are florists, restaurants, and those making products with gift potential.

250m Roses produced for Valentine’s Day

Florists see blooming business for every year: some 250 million roses are produced just for that period. Surveying by the National Retail Federation suggests that over one-third of people in the US will have bought flowers for this year’s Valentine’s Day.

Incidentally, flower sales are a great example of just how much some industries rely on expressions of love. Valentine’s Day accounts for 24% of all transactions in flowers purchased for holidays, with Mother’s Day transactions making up 25%.

Changing Habits?

And despite the tried-and-tested traditions of jewellery, chocolate and cards, Valentine’s Day still offers a battleground for new trends to break through. The surrounding week is becoming an increasingly popular time to take a trip away, for example. Airbnb reported 2.5 million guest bookings between February 11th and February 17th this year, an increase of 86% on the same time in 2016.

Spending has taken a turn from tradition in more respects than just what people buy, too. The last few decades have seen a greater trend of buying Valentine’s day gifts for one’s children or parents, but pets are now getting some of the action.

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Americans spent a perhaps disturbing $593m on Valentine’s gifts for pets this year, according to projections by the National Retail Federation. Pets featured in US Valentine’s spending even at the height of the financial crisis – in 2008 some $300m were spent on doggy treats and the like. In fact, this year they were more likely to be treated than teachers and co-workers.

Love and Technology

There are naturally more avenues to explore the economic element to love than spending habits, however difficult they may be to quantify. Technology, for example, has transformed relationships over the last two decades, effectively acting as capital to the transactions that make up human interactions.

It’s common to hear mobile phones berated for distracting people from meaningful relationships, but are they all that bad for keeping human love in a healthy state?

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(Chart: text messages)

In fact, the majority of people use mobiles to contact their love ones, and evidence suggests that they continue to do so in spite of the advent of smartphones and the almost coterminous rise of the ‘millennial’. For instance, survey data collected on social network users in 2011 showed that 38% of those in a relationship send more than ten text messages a day.

Screening for a Mate

Smartphones and internet connectivity could well have brought more opportunities to the world of love than they took away. Dating sites have been growing in popularity for some time – in 2015, for example, 15% of all US adults had used similar services – and whilst many may hold on to face-to-face chemistry as the best way to find a future partner, there is little doubt that many people have been brought onto the dating ‘market’ than would otherwise have been the case, whether it’s a lack of time, distance, or loneliness keeping them apart.

Location-based dating apps like Tinder have supercharged this phenomenon. Apps like these also underscore another way in which technology can widen the dating market. By putting love or lust just a fingertip away, with less immediate interaction, it changes the ‘cost structure’ of entering the market as a ‘producer’ or ‘consumer’. The ultimate rewards of a successful interaction are similar across an app or a chance encounter, but with only a blank screen as the ‘cost of failure’ in the former compared to the visceral awkwardness of a cold shoulder in the former, the millennial generation’s growing favourability towards dating apps perhaps makes economic sense.

Many an orthodox economist would happily confirm the benefits of breaking down geographic and information barriers in markets. It’s highly plausible that doing the same for the dating market can only be a good thing for human relationships, even if it sounds a little off to think of it in terms of, say, the efficiencies brought about by increasing competition for a potential mate.

Vices Never Die

It might not all be this rosy when it comes to technology and relationships, though. The assumption that the ‘capital’ of greater connectivity only enables happy and positive transactions isn’t that sound on closer inspection. Depending on the cultural norms in any given country, the ease of taking or leaving potential relationships with so little cost might not be such a good thing.

In a world where most cultures place a heavy value on monogamy, for example, some may squirm at the sight of just how many people use technology in a way that their loved ones probably don’t want them to. A 2015 survey by GlobalWebIndex found that more than a third of global Tinder users are married.

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Has technology really improved the market for love overall, then, or might its net effect not be all that it’s cracked up to be insofar as it reflects old human foibles?

As with many of the fine-grained attempts to use economic analysis on social phenomena, it’s probably too hard to tell. On the other hand, it might not be that important anyway, as some evidence suggests. Comparing a selection of app types according to their popularity among the young suggests that hardly any of them even use dating apps:

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When stacked up against all the other things that younger people use smartphones for, dating apps make up a rather small part of their online lives. This fits into a growing body of data suggesting that millennials are more eager to maintain human interaction in the relationship market than they are given credit for. Could it be that people aren’t as keen on a tech-heavy dynamic when it comes to finding a mate?

This kind of defiance towards wider trends seems characteristic of human relationships. People may be spending more on showing their love than ever before, if the trends in Valentine’s Day habits are anything to go by, but the way they use that money has stayed more or less the same in recent decades (excluding the arrival of cats and dogs on the Valentine’s scene). Meanwhile, Internet-connected services have revolutionised the way most people interact with businesses and entertainment, but those looking for love still put most of their faith in human interaction.

Taking an economic eye to something as complex and human as love is never going to yield simple results. But if there’s one thing that’s striking across the different angles that can be pressed on the topic, it’s how the world of relationships and affection seems to be weathering the recent changes seen elsewhere in economic life.

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