THE ECONOMICS OF SEX, ALCOHOL AND HAPPINESS

Based on Tim Harford's talk at the Warwick Economics Summit

Money may well make the world go round but economists are increasingly interested in the economics of wellbeing – and sex, happiness and, for some, alcohol, are high up on that list. In his entertaining talk for the Warwick Economics Summit Tim Harford shows how economic theory can demonstrably be applied to our everyday choices in life and love.

Dating

When it comes to love do you think like a romantic or an economist? A romantic may believe that there is a special person out there for each of us – a concept that we might call ‘the one’.

An economist, however, thinks that love is a market with supply, demand and competition. Empirical data from speed dating sessions have proved the economist to be right.

A typical speed dating session is arranged by a specialist company which accepts an equal number of men and women for the ‘date’ night. Each participant fills out a form beforehand answering questions such as their age, occupation, what they earn and whether or not they smoke. On the night the women sit at tables and men rotate round, with three minutes to talk to each woman individually. Afterwards every participant fills out a form to say whether or not they’d like to see each ‘date’ again. They then find out who also ticked them.

For one project economists studied the surveys the daters filled out before they arrived on the night alongside their end-of-evening dating scorecard. This empirical research showed that both men and women prefer tall, educated non-smokers; but women like their men rich and men don’t care how wealthy their potential mate is, they just prefer her to be slim.

The theory of the market also applies. Whilst men tend to tick more people to potentially date than women, both sexes adjust their behaviour to reflect market conditions. Each change their standards according to who is available in the dating pool.

Wine

Numerous festivals around the world celebrate prestigious, highly-priced wine; with experts awarding medals to the vintages they judge to be the best during a blind tasting. Indeed, most of us would say that an upmarket bottle of wine will taste better than a supermarket’s cut-price vino.

Yet is it really true that expensive bottles of wine are worth their high prices?

One economist, who is also a small vineyard owner, decided to submit wine competitions to empirical testing. By entering the same wine a number of times in a competition, unbeknown to the judges, he showed that the wine did not receive the same marks. There was very little correlation between the marks given. The judging process was partial and flawed.

For another project, testing by neuroeconomics researchers using functional resonance magnetic imaging (fMRI) scans proved that participants were swayed by the price of a bottle of wine. Their brain scans showed that when told they were given an expensive, rather than a cheap glass of wine, the testers’ brains were excited and engaged. Economic theory, then, shows that an expensive-looking label on a bottle of wine doesn’t necessarily mean that the content tastes better than a bottle of plonk, although we think it will.

Happiness

Economists such as Andrew Oswald have shown that a developed country’s higher GDP doesn’t equal increased happiness in the population. So what has economic studies shown to put a smile on our faces? According to Harford, data has shown that “it’s depressing to be unemployed, not that great to be employed but pretty good to be almost anything else”. Students top satisfaction polls and people with higher degrees are happier over and above the effect the degree has on their income or chance of getting married.

People who tie the knot are higher in happiness according to empirical data, with divorced and widowed people more likely to be unhappy. Money, however, can buy happiness with the wealthiest top 25 per cent of the population scoring the highest in happiness polls. No surprises that the bottom 25 per cent score the lowest.

Rather than studies asking how happy a person would rate themselves to be on a sliding scale, recent economics researchers ask participants what they did yesterday and measure the emotions they felt. American economist Alan Krueger’s research in this area revealed actions that, on average, make people miserable or happy. Top of the misery league is commuting, with shopping and computing bringing up the rear. Most likely to put people in a positive state of mind, his work revealed, is sex, with eating dinner and praying not far behind.

Do you agree with Tim? How does economic theory shape your personal choices? Leave your comments below.

Tim Harford is the author of The Undercover Economist, a book that looks at the fundamental principles of the modern economy and how they drive our everyday choices, and is also a contributor to the Financial Times. His other books are The Logic of Life and the forthcoming Adapt, which argues that success starts with failure.

By Penelope Jenkins