A friend trained in economics, let’s call her “Polly”, was over to the house for dinner last night. She asked if we knew anyone for a twentysomething friend of hers, let’s call him “Bunbury”, who worked a demanding software management job at a big software company. He was a “really nice guy” and she was perplexed that he couldn’t find someone. If someone at the table had said “there is a company traded on the NYSE that is really undervalued” she would have immediately hammered him with an explanation of the Efficient Market Hypothesis:
“An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”
(see http://www.princeton.edu/~ceps/workingpapers/91malkiel.pdf and http://www.investorhome.com/emh.htm). Why then was Polly convinced that her friend was such a catch? Applied to romance, the Efficient Market Hypothesis says that if the guy were actually worth dating one of the millions of women who live within a 30-mile radius of his house would have figured it out.
It occurred to me that all of the really nice mature easygoing people that I know are married. If one looks carefully at a single person it is usually not hard to find an explanation for why they are not happily paired. One might be able to find an exception in an isolated fishing community in Alaska but in a major metro area within the Lower 48 it seems improbable.
What about Bunbury? Polly says that he is smart but presumably all of his intelligence and cleverness is expended at his 80-hour/week job, which in any case is best described as “sits at a desk and types at a computer”. What’s left over for a potential partner is part of a paycheck. If she wants to marry a paycheck, there are plenty of medical doctors and Wall Street guys who make a lot more than Bunbury.
The market for Bunbury is really only “efficient” if a good percentage of the available partners for Bunbury knew about him and could make a judgement of his desireability. I would say that most dating “markets” are highly inefficient, which is why so many dating and meeting services are around for making introductions.
I agree with Neil. And if your theory is correct what does it say about divorced people?
It is true that efficient market theory (EMT) is valid, but only for markets that are in fact efficient, and one needs to take care in defining precisely what is efficient. The stock market for example is in fact “efficient”, but not for determining “intrinsic value”, but for simply clearing queues of market and limit orders. Clearing transactions and determining “intrinsic” value are two radically different objectives. Wall Street’s focus and reason for existence is to collect transaction fees, hence the interest in rapid clearing of transactions.
Back to Polly and Bunbury… maybe we don’t have a clear definition of “the market” and the nature of supply and demand in that market. Yes, there is real demand and real supply that could meet that demand, except that there is no efficient mechanism for the “clearing” of *all* transactions.
Maybe there are simply too many market participants who have unrealistic “limit” orders, with no “market maker” mechanism of participants willing and able to step in to “make a market” when the existing limit orders are too far apart.
Poor Bunbury… maybe there simply isn’t any market for the product that he offers. Or maybe the market wants his product, but at a “lower” price. Or maybe he’s essenially “asking” at a “limit” price, when he needs to consider taking the chance and asking “market” price. You can’t have an efficient market without market pricing. Does the “dating market” have a “market price” mechanism? That’s debatable, but let’s assume that it does and then the problem becomes one of how Bunbury can present himself for sale “at market”.
Sure, we have a variety of “market makers” (dating services), but apparently not enough or in the right form to assure a reasonable level of efficiency.
Actually, the original post didn’t make clear whether Bunbury is actually “in the market”. If he is, is he struggling (like Warren Buffett) because he can’t sense any long-term buy-and-hold opportunities or maybe is he actually prepared to settle for a short-term speculative “flip”? Maybe he’s like a lot of investors and simply is unable to analyze the opportunities around him to determine the “intrinsic” value of the available investments and to recognize “undervalued gems” that may be right in front of his nose (or merely a chat-room click away).
— Jack Krupansky
um, “economics” is known for mistakenly assuming ‘rational behavior’.
the dating culture is even less rational. ‘QED’ 🙂
Philip: one trouble with your application of the theory is that it should apply equally well to Bunbury’s prospects. If there were any sane, nice, attractive women in Bunbury’s vicinity, somebody would already have snatched them up and married them. If the market is efficient, there are no available women for Bunbury to meet at the moment when he looks up from his career and decides it’s high time he should meet one. (Or ever, for that matter.)
There is a finer point proven by Polly’s own description of Bunbury. If he’s so great, why doesn’t *she* go marry him? Assuming she’s single, perhaps he’s not her type. Different individuals need very diverse features in a partner. Often, these features are not easy to describe, perhaps because they are not known even to the individuals needing or satisfying them. Clearly, there are many commonly valued attributes in physique, wealth, intelligence, etc. But there are a tremendous number of traits, loosely described as “personality”, that do not have conventional valuations. For example, some people require a stern and organized partner, while others require someone flexible and indulgent. Uncoupled individuals constantly signal these needs, but others are generally pathetically incompetent at reading these signals. Thus high skill at understanding and adapting to subtle personality needs is the chief tool in the seducer’s arsenal.
That said, Bunbury’s chances of luring a mate with these generically good features are still abbysmal. Anyone seriously attracted to these features will move to Silicon Valley or Redmond where they are disgustingly abundant. She will join a sporting, political, volunteer, or musical organization and pick from the subset who might share her interests.
One of the simple ways to prove that there are complexities in this system not yet modeled is for a man to go to a bar wearing a wedding ring or with an attractive woman. Just as in real-life markets, branding and crowd behavior have a large effect.
Also, as we can see from looking at the behavior of public companies, participation in certain markets causes behavior change as the entities involved adapt to optimize their returns in said markets. Can’t speak for Philip, but that’s why I’m not married.
Marriage is an arbitrary institution. Finding “the” perfect partner for life is just absurd. Body parts, bodily fluids, mating and spawning obviously have their purposes. But stop the brain washing about life-long pairing!
I think it is sufficient merely to recognize that the dating market is not, in fact, economically efficient…never has been, and probably never will be.
That being said, I’ve discovered a similar phenomenon. Starting a business while working a full-time “day” job is fundamentally incompatible with the development of new relationships in romance-retarded geeks. It’s a bit disappointing, but if I cared so little about the business that I’d give it up for a chance of getting a girlfriend…well, then I guess I’d deserve to stay a wage slave for life.
On the other hand, as a 29 year-old, I’m holding out hope that you’re right about women preferring men in their 30s. 🙂
Maybe the efficient market theory is not the relevant theory for Bunbury. Perhaps, it’s more an issue of sales and marketing. Assuming this hardworking fellow indeed wants a wife, how is he marketing himself? Is he focusing on the correct demographic?
No one bothered to ask poor Bunbury for his input on this equation. If mating/dating is in fact an efficient market and analogous to the stock market, maybe just maybe, Bunbury has recognized his fortunate situation and simply enjoys collecting the ‘transaction fees’ of the mating/dating market and simply wants to remain on the market and available.
Also in answer to the earlier comment of the market value of divorcees, I would say the market has spoken: sell!
Of course, the efficient market hypothesis would also suggest that the doctors and wall street guys can’t keep their high salaries much longer. Bunbury could probably make a relatively easy career change to wall street guy, and while there might be some barriers to entry in the medical field, 80 hours a week is a good start towards overcoming them.
The EMH is a myth. Read up on some contrarian investing, or better yet look at Buffett’s success with real companies, using non-EMH methods of determining value.
If Bunbury is serious about finding a woman, he should quit his 80-hour-a-week bullshit desk job, move into an inexpensive Chinese-manufactured RV, and spend 80 hours a week looking for his soulmate.
I met my wife during out “middle-age” years when I was living in a southeast Asian country days, after I’d met many of her friends who were mostly all artsy-fartsy types, I commented that I knew what she found attractive about me, the computer nerd. I was the only straight, single guy she knew. “Not true” she protested. So I challenged her to name someone else who fit that description. Silence.
What the hey, either this blog screwed up or I’ve have one glass of wine too many. That should have said: “I met my wife during out “middle-age” years when I was living in a southeast Asian country (her home country). In our courting days, after I’d met…”
If I read between the lines correctly, Phil said said Bunbury can’t find anyone because he’s a defective loser…and a relatively poor one at that! Come now Phil. While I got a chuckle out of your Efficient Market Hypothesis to Dating, I’m sure you of all people would be smart enough to know a sophistry when you see one. Or maybe you’re just yanking our chains. 🙂
What a bucket of cold water this Efficient Market Hypothesis is, Phillip! Today I stumbled upon your story about seeing Lily (specifically: I was searching for The Miraculously Perfect Camera Bag for my D70, ran across your post about camera bags that included a reference to having your camera bag stolen, clicked on the link because I once had my camera bag stolen in Naples, Italy once and wanted to read about someone who knows that pain, then read about your Lily meeting, which was part of the story of the stolen bag).
Anyway, I was touched by your description of your feelings on seeing Lily again and wanted to read more, which led me to this blog. I choose not to believe your Efficient Market Hypothesis. Haven’t thought of a better one yet, but I will! 🙂
Oops, sorry, “Philip”.
“It occurred to me that all of the really nice mature easygoing people that I know are married. If one looks carefully at a single person it is usually not hard to find an explanation for why they are not happily paired.”
I agree. Unless you have analyzed the market and realize that your highest potential value is at a later date.
Stick with me here.
I realized I was never going to be the most attractive 20 yr old. (we’re talking all the components of attractiveness) Put me in the 65% range.
I probaby won’t be the most attractive 30 yr. old (upper 25% range). But I DO have a shot at being in the upper 5% for 35 year olds.
Generally this is due the the physical decline of others in my peer group and the fact that through a ton of work, my physical appearance has improved in comparison to myself and my peer group.
And then there is the issue of “important current information is almost freely available to all participants.” Obviously, one could argue that the reason the “dating market” is not as efficient as, say, the stock market is that there isn’t necessarily freely available information…
You’re assuming that a person is a commodity – that they would have the same value to any potential mate. That just isn’t true, different people have different values. A better model would be to view a person as a high-dimensional vector, and their preferences as another similarly-dimensioned vector of coefficients. And that’s getting into the dating web site model…