LOVE IN THE EYES OF ECONOMICS: An explication of Rational Choice Theory and Social Exchange Theory by way of Human Relationships

“Everything you want in life has a price connected to it. There’s a price to pay if you want to make things better, a price to pay just for leaving things as they are, a price for everything.” –Harry Browne

The Jumping Board for the Introduction

Teaching economics is more difficult than studying it. That’s one of my realizations after teaching the subject for almost 4 years already.  I did not only study thrice as much as I would expect my students to study the subject; I also rethought and unlearned my economic impulse, giving in – without second thought – to wants (Needs are relative in some sense.) by hook or by crook.  How?  Well, I have come to realize that economics is all about prioritization and making the right choices; that man wants (or needs) more and more yet, inversely, our resources cannot keep up.  And so, life has become difficult to a contemporary man.  These are times when you just hope you’d be in a band system when the earth has so much to offer – to all of humanity – that we never thought of “wanting more” because there was more than enough.

To a contemporary man, choices have become a luxury. One right choice can make you a step closer to the life you dreamed of.  On the other hand, one wrong choice can determine your life a failure already.  It’s a do-or-die situation.  Heraclitus said, to such choices and their consequences, “you can never cross the same river twice.”  (So, be careful!)  Good enough if you have the moral stance, but what if not?  Thomas Aquinas would advice, “when in doubt, don’t.”  But this surety of discernment is not a “virtue” of humanity, more so, of a contemporary man.  We often act out of impulse; and so, decide rashly.  Making choices the right choice has become difficult.  Our decisions, individually, as a family, or as a community, is not only governed by our basic needs.  Our wants — trivial it can be — dominate much of our choices.  And we justify it so often to “taste.”

But putting together in mind the advice of Heraclitus and Thomas Aquinas, economics, as it is about making the right choices, also equips us with the “eyes” to see our present situation (the “what is”) as well as how we can develop or improve, guided by standards or ideals (“what should be”). Between these two aspects, that of “what is” and “what should be,” our society is alive; our society continually grows.  And at every step in the process, whether we have made the right choices or not, we secure the life of society.

What kind of life we live, then, is dependent on the choices we make. This is how crucial, pivotal, and essential choices – making the right or wrong choices – are to society.  Structurally, we are dependent on each of our choices as individuals interacting in our respective social spheres – at home, in school, at work, and in the long run, in our society in general, like when we vote for our public servants.  This is not just for economists to devote their time into; this is for every person who would want to “satisfy their human wants” without wasting so much of our resources, without becoming greedy or selfish.

Question is, why do we need to choose? Can it just fall from the sky when we can just passively accept what is provided — by fate, by luck, by God?  At some point, just as choices are crucial, pivotal and essential to life, value makes us choose what we choose.  What then is value?  What determines value?  Is it the value of tradition like that of heirlooms?  Is it the price of commodities, whether it is cheap or expensive?  Is it the design or the brand?  Is it just because of our favorite color or cartoon character?  Is it the good, though ambiguous a term, essentially or that comes out of it?  We can continue to draw out definitions of value from different schools of thought but inasmuch as we have to highlight it, value is an attribute of a thing that makes it desirable, or wanted or even needed; it is a standard to which people define good and bad, even beautiful and ugly…; it indicates what we hold worthwhile in life.

Value underlies our preferences. Value guides our choices.  How much we desire something, how much we hold worthwhile somebody or something, how much we value, determines so much the consequent choice.  We would not value something we do not like; and so, we would not choose something we do not value.  By principle, it falls constant in all relationships, interactions, even structures and processes in our life.  It is constant in our “difficult” contemporary life.

Now the essential question is: Why or how do we choose to choose our choices, be it the right one or not?

In this paper, I shall explicate two theories that make us “choose our choices” in life, individually, as well as, its implications to the choice of others, which eventually, form the kind of society we are in. These are the rational choice theory and the social exchange theory.  To give spunk — or spice — to the explication, I shall try to explore the salient points of these theories using human relationships, especially LOVE, as a point of reflection.

Introduction: Why human relationships? Why love?

Nelson Pavlovsky opens his article “Understanding Falling in Love: An Economic Analysis,” reiterating the folk wisdom that tells us that “the best things in life are free.” In fact, this is the first value I wanted my students to learn in my economics class: that there are a lot of essential things in life that money cannot buy. And I would start a debate by suggesting “love” as one of the best things that is free. At first thought, my students would agree with me. But after awhile, especially for those who have started up some sort of relationship – baby love or puppy love, that is – they started to change their opinion and say that even love is not free. It comes with a price, too, they would say. And they would start to narrate…better said, they would start to calculate or equate… Come to think of it, nothing in life is free; even “the best things in life” come with a price (“ceteris paribus”). Why? It comes with a value. What gives it a “price” is its value no matter how subjective it can be. With this considered, love, like candies, is a commodity. Following through with the essential question — why or how do we choose to choose to love or be loved for that matter — will be dealt with in the explication of rational choice and social exchange theories.

Rational Choice Theory (How do RCTheorists love?)

Rational Choice Theory (RCT) is a dominant paradigm in economics, but in recent decades it has become more widely used in other disciplines such as sociology, political science, and anthropology. (Green, Steven L., Rational Choice Theory: An Overview, 2002) Its variants are Choice Theory or Rational Action Theory, following the framework for understanding and often formally modeling social and economic behavior.

Its major proponent is James Coleman. For him, “persons act purposively toward a goal, with the goal (and thus the actions) shaped by values or preferences.” (Rizter, George and Goodman, Douglas, J. Sociological Theory, 6^th ed., McGraw Hill)  This basic idea to RCT has two elements: actors and resources.  Actors have “control over resources and events, interests in resources and events, and the capability of taking actions to realize those interests that control.”  Resources are “those things over which actors have control and in which they have some interest.” (Ibid.)

We can see here a certain movement towards a goal. This goal can be anything that has value or one has preferred to have; need- or want-wise.  This is something natural to human beings – the movement toward a goal.  To Abraham Maslow, it can start with our physiological need, things (goals) that can keep us alive.  Survival is the goal of which being able to eat and drink, having shelter and clothing, having, at another stage, security and belongingness so on and so forth, satisfied every step of the way.  At some point when we want to eat/drink milk when we were babies comes out of our nature and it is somehow automatically satisfied.  RCT is not operational at this point.  The actor – the baby – is not yet “in control” of his surroundings, of his resources.  But as the baby grows up, when he has acquired a certain level of awareness, having been socialized around his significant others in the family, with his relatives, later on, with his classmates at school and his peers, he slowly acquires the capability to take action, to be in control.  This is when RCT can slowly operate in the consciousness of the actor.  Why?  “Rationality” in RCT means that the actor acts as if balancing costs against benefits to arrive at action that maximizes personal advantage.  (Becker, Gary S. (1976). The Economic Approach to Human Behavior, Chicago)  The actor “rationally” makes the choice.  Based on what?  Based on the value of that goal, be it a person or a thing.

Do we choose to love or be loved rationally? Do we get to see the value of the person we love by which we choose to love?  How much would we lose – the cost – to gain the love?  Is the gain of loving equal or more than the losing, more than the cost?  At normal setting we leave off these questions.  We do not even bother to think “rationally” in terms of RCT, not that we don’t use our reason or our mind in loving.  (Though others, eventually, do not.)  What is the cost of love, of loving, of being loved?  What is the gain of love, of loving, of being loved?  At some point, when we bring this to our experiences, we become so calculating.  The risk of loving someone, the excitement, the spice even, are all calculated whether we get something out of it or not, and we further calculate.  What if we don’t get something out of it in the process?  Should we choose to end that from which we simply lose without a gain?  I’d be damned this is how couples who end up separated after a few years of marriage think (worst if it comes after decades!).  This can also be the argument many of the “transient” relationships many of the couples, be it of any combination, think and in the long run, throw at each other.  Rational Choice can be mathematically absolute and precise read along the lines of costs and gains over the value of our goals, of the things and persons we love.  This is what RCT proponents call “utility function” which draws us back even to pragmatism when what is good is what is practical or useful in context.

“The basic idea of RCT is that patterns of behavior in societies reflect the choices made by individuals as they try to maximize their benefits and minimize their costs. In other words, people make decisions about how they should act by comparing the costs and benefits of different courses of action.  As a result, patterns of behavior will develop within the society that result from those choices.” ((Becker, Gary S. (1976). The Economic Approach to Human Behavior, Chicago)  Here, RCT is a theory that follows the micro-to-macro analysis, of which, it starts to analyze individual behavior, for instance, as to the way they choose and act (micro); then individuals to other individuals (micro-to-micro), having interest on the impact of action of one to another; and then, following through a micro-to-macro linkage or how actions of individuals in the micro and micro-to-micro level makes up the macro; and then, the last movement of which is the macro-to-micro, where social institutions, in its structures and processes, in social facts, impact the individuals in society.  It follows, in some sense, the shape of a triangle.  For Coleman, this resulting structure – like that of a triangle – moves from maximizing his or her own interest instead, in this instance an actor seeks to realize the interests of another actor, or of the independent collective unit (that is of society). (Rizter, George and Goodman, Douglas, J. Sociological Theory, 6^th ed., McGraw Hill)

In some sense, this would allow us to analyze how Filipinos love. Individually, how do Filipinos value human relationships, how do Filipinos value love?   Inasmuch as we believe that Filipinos still value married life by hook or by crook, resisting the passing of the Divorce Law or even the Reproductive Health Bill as it goes against the general principle of love reflected in family life, for instance, is this consistent with how individual Filipinos views it?  Are Filipino choices still guided by pro-life values?  Are pro-life values the reason for Filipinos choosing to concede or resist these bills?  This is micro and micro-to-micro level.  If we secure as much information or a some sort of picture to see how we “see” this (the “what is”) – in effect, how value love, too – going to micro-to-macro, that same values may be reflective of our collective unit, our Filipino society.  This will eventually be proven when Divorce Bill or Reproductive Health Bill will be passed or not granted, that whatever the turn out, that will become a Law of which, in effect, follows macro-to-micro.  These bills once passed as law will impact the collective unit, the society at large.  Our choices would be dictated.

Coleman said to this effect, “A minimal basis for a social system of action is two actors, each having control over resources of interest to the other. It is each one’s interest in resources under the other’s control that leads the two, as purposive actors, to engage in actions that involve each other…a system of action…it is this structure, together with the fact that the actor are purposive, each having the goal of maximizing the realization of his interests, that gives the interdependence, or systemic character, to their actions.”

All it takes to see how love operates even in the “eyes” of economics, in the light of Coleman’s RCT, is two actors (two persons). The choices of these two actors, taking into consideration the resources available to them and the events that they are in or can create, makes up the whole story possible.  To end it before the climax, or when things are just going through rough times; or never end it no matter what are all dependent on rational choices.  Between them, the two actors, the valuing of each other, the loving each other, all depends on how we maximize the gains or the benefits, over the cost.  In the long run, the totality of all the experiences – of love – of actors all in all reflects our collective unit, shows how much Filipinos love.

Social Exchange Theory (How do SETheorists love?)

Social Exchange Theory (SET) is a social psychological and sociological perspective that explains social change and stability as a process of negotiated exchange between parties, positing that all human relationships are formed by the use of a subjective cost-benefit analysis and the comparison of alternatives. This has in fact some roots in RCT.

(As I continue on, you might as well get a paper and start jotting down items under the concepts or terms I will explicate; equate it and make sense of how it turns out.)

Some basic concepts used in SET are costs and rewards (www.wikipedia.com). Costs are the elements of relational life that have negative value to a person, such as the effort to put into a relationship and the negatives of a partner.  Costs can be time and effort, money spend on a date, for instance.  On the other hand, rewards are elements of a relationship that have positive value like love in a sense, acceptance, support, trust, or acceptance.  Between costs and rewards, SET followers calculate that overall worth of a particular relationship by subtracting costs from the rewards it provides.  Thus:

WORTH = REWARDS – COSTS

Benefits, another concept to consider, include things you gain from a particular relationship which can be looked at as well as costs if considered negatively. Outcome, on the other hand, is the difference between benefits and the costs.  Thus:

OUTCOME = BENEFITS – COSTS

Because individuals have different expectations of relationships, an individual’s satisfaction with a relationship depends on more than just the outcome. Why so?  For two persons who may have given the same benefits left out of certain costs, have different outcomes as well but may have a different level of satisfaction based on their expectations.  Thus:

SATISFACTION = OUTCOME – COMPARISON LEVEL (as in with expectations)

There are people who stay in unhappy relationships as well as those who leave happy relationships. What determines whether an individual stays in a relationship or leaves is the set of alternative relationships available.  If there are many alternatives available to an individual, then that individual is less dependent on the relationship.  Thus:

DEPENDENCE = OUTCOME – COMPARISON LEVEL OF ALTERNATIVES

These alternatives are governed by either extrinsic (money, physical labor) or intrinsic (love, affection, respect, trust) factors as Peter Blau proposed. To him, the parties cannot reward each other equally.  Thus, there is always inequality.  How we take the inequality, normally, would fall to costs.  But how do we negotiate?  How do we make things work despite the seeming inequality or the unsatisfied expectations?  How do we usually survive and at the same time work to salvage relationships?

Making choices are significantly important in the assumption of dependence in SET but it all zeroes in to worth, to the value of each individual in a particular relationship. But what moves individuals to choose, making such formulas above contingent?  George Homan proposed 4 propositions: stimulus, value, deprivation-satiation, aggression-approval, rationality propositions.

(As you have equated your relationship with the formulas above, try working out some sense, again, with the details drawn out from the propositions of Homan and see how you work with your significant other.)

Stimulus proposition, as Homan puts it, “ if in the past the occurrence of a particular stimulus, or set of stimuli, has been the occasion on which a person’s action has been rewarded, then the more similar the present stimuli are to the past ones, the more likely the person is to perform the action, or some similar action.” While value proposition considers that “the more valuable to a person is the result of his action, the more likely he is to perform the action.”  Deprivation-Satiation Proposition, states that, “the more often in the recent past a person has received a particular reward, the less valuable any further unit of that reward becomes for him.”  Aggression-Approval Proposition, on the other hand, states that, first, (Proposition A) “when a person’s action does not receive the reward he expected, or receives punishment he did not expect, he will be angry; he becomes more likely to perform aggressive behavior, and the results of such behavior become more valuable to him;” and second, (Proposition B) “when a person’s action receives the reward expectedly, especially greater reward than he expected, or does not receive punishment he expected, he will be pleased; he becomes more likely to perform approving behavior, and the results of such behavior become more valuable to him.”  And the last, rationality proposition states that “in choosing between alternative actions, a person will choose that one for which, as perceived by him at the time, the value, V, of the result, multiplied by the probability, p, of getting result, is the greater.” (Rizter, George and Goodman, Douglas, J. Sociological Theory, 6^th ed., McGraw Hill)

Question now is, with SET explicated, how is our human relationships? If I have qualified how calculated RCT is, SET, on the other hand, has allowed individuals to see their relationships objectively, putting it in an equation.  Methodologically, the formula puts relationships, with that supposed spice of expectation, of surprise, of the romance of fate or destiny, even of belief in soul-mates, more like an equation to solve, more so, even a game.  Often we here the statement, “We are not compatible.”  Or that, “They have the right chemistry.”  This is more SET than just cliché.  The danger, for me, to human relationships with this hardy SET formulas – to love, for instance – is we forget that love, like all the best things that matter (not that they are still not free), are intrinsic, are intangible; something which cannot be equated.  Value, or to SET, “worth” is just part of the equation.  Loving someone or being loved by someone will be moved by “what ifs” like as if you are playing chess, more likely as you substitute the components of the equation as you evaluate your human relationships.  What ifs…what if his worth cannot meet my many expectations, would I be satisfied?  What if my worth is far less than the expected dependence I should impose, given the many alternatives?  What if…what if… What then would happen to love?

(How did you fare somehow in your “love-equation”?)

RCT vs. SET (Who is the best lover?)

After explicating why we choose to choose our choice, be it, to love someone or something, using RCT and SET, I could not help how contemporary man can be so “economic” in his way of thinking and even of feeling granting that love, after all, is a feeling. In terms of value, for RCT, the person loving has to gain something; and that something should have a “utility function.”  To SET, value is just there in the equation, above all else, its satisfaction that counts.  Rewards and punishments cut across both theories.  SET, on the other hand, calculates it further with Homan’s propositions.  That, from the perspective of a SET fan calculating whether his/her love relationship would work or not, has to consider every detail of the relationship, intrinsic and extrinsic, that is, whether he is still satisfied or not, doing it like a certified public accountant balancing spreadsheets.  More so, for the loved one, the other, worth may come insignificant, his/her satisfaction might be taken forgranted over available alternatives.  This concept of “alternatives,” come to think of it – is not just SET all along – in fact, it is very contemporary just so when the world now offers a lot of “alternatives” to choose from that our choices are not grounded on values, on worth, on goodness; it comes with the features, for instance; it comes with the “latest,” with the “updated,” with the fad.  And all is left is a blur of choices, impulsively grabbed, and easily discarded.  Love is not an exemption to this phenomena.  RCT on the other hand, implies only a choice between this-or-that, between A-or-B.  Between the concepts of cost and reward in RCT, at some point, one is given up for the other.  The other is given up to have the other, to love the other – one and only.

Either theories, grounded so much on economics, puts even the best things in life — with a price. Even love.  It is obvious that, as we live our day to day lives, just as we take economic principles into sociology where we study human interactions and relationships, we cannot deny the fact that we look at life – in general even – between what or where we can gain from more compared to the cost.

True indeed how Homan qualifies social behavior. He said, “Social behavior is an exchange of goods, material goods but also non-material ones, such as the symbol of approval or prestige.  Persons that give much to others try to get much from them, and persons that get much from others are under pressure to give much to them.  This process of influence tends to work out at equilibrium to a balance in the exchanges.  For a person in an exchange, what he gives may be a cost to him, just as what he gets may be a reward, and his behavior changes les as the difference between two, profit, tends to a maximum.”

As a teacher in economics, I guess in between RCT and SET, I claim truce; and work out the banner of VALUE to the choices we make. Making the right choices matter a lot.  Theoretically, human relationships are much complicated to be calculated (RCT way) or equated (SET way).  Doing these with love, for a fact, would do more harm than good as – economics – is neither an absolute science; it is still proximate.  It is still dependent on the erratic human behavior.  Human relationships, after all, is open to all probabilities that fixing it to the “schedules” and “curves” of economics is absurd.  By this, I propose to work with this tentative framework:

LOVE = WORTH + OUTCOME + SATISFACTION + DEPENDENCE

With this formula, after all, the “negativities” are overshadowed once you put the entire “positive” in one equation.

Heraclitus should remind us of the possible implications as well as inevitable more so, latent consequences of the choices we make at present. We cannot pass the same river twice.  That is why, when still in doubt, Thomas Aquinas says; with hands outstretch to hold us back, “Don’t!”

REFERENCES:

1. Ritzer, George and Goodman, Douglas, J. Sociological Theory, 6^th ed., McGraw Hill.
2. Hechter, Michael and Kanazawa, Satoshi, (1997) Sociological Rational Choice Theory, Annual Review, Inc.
3. Green, Steven L., (2002) Rational Choice Theory: An Overview.
4. Friedman, David, The Economics of Love and Marriage (Price Theory). (http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_21/PThy_Chap_21.html)
5. (handout) Pavlosky, Nelson, Understanding Falling In Love: An Economic Analysis.
6. Family Crisis: Social Exchange Theory and Developmental Theories (http://www3.uakron.edu/witt/fc/fcnote5b.htm)
7. Theories of Sociology: Social Exchange Theory (http://edu.learnsoc.org/Chapters/3%20theories%20of%20sociology/14%20social%20exchange%20theory.htm)
8. Variables of Love Economics (http://www.solvedating.com/love-core.html)
9. http://en.wikipedia.org/wiki/Rational_choice_theory
10. http://en.wikipedia.org/wiki/Social_exchange_theory