The dating market part 3: Does Adam Smith’s “invisible hand” theory apply in the dating market?

Remiel, Maverick

The dating market part 3: Does Adam Smith’s “invisible hand” theory apply in the dating market?

By: Maverick Mikhail Remiel

 

In his book ‘The Wealth of Nations’, Adam Smith introduces the invisible hand; an invisible economic force which leads economic agents to “make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants…”. The invisible hand theory argues that by having each economic agent act as ‘selfishly’ as possible (i.e., always striving to maximise their personal utility), the optimal and efficient allocation of resources can be achieved. The Invisible Hand theory, though flawed, has been used as the basis or inspiration for many rudimentary economic theories, especially those relating to the allocative efficiency equilibrium. Following our previous explorations on the dating market mechanisms that is parallel to economic markets, this article explores whether one of the most important early economic theory can be applied to the dating market

 

Logical basis of the invisible hand

This invisible hand theory has some logical basis in the idea that selfish-behaving economic agents’ interactions with each other would result in an allocatively-efficient equilibrium being reached. For example, the selfish drive to increase his/her own personal wealth may lead a business owner to drive down the cost of production as low as possible against the competition, which leads to an optimal allocation of production resources. This means that the demands are fulfilled by the suppliers who are best suited (i.e., have the lowest production costs).

We have established in the previous article that increasing competition as a market force has a pronounced impact on the dating market as a whole. In particular, competition motivates economic agents to ‘improve’ their standing in the dating market not for improving overall social welfare, but rather to fulfil their selfish goal: finding a partner whose ‘qualities’ are as high as possible. Thus, the logical reasoning behind the invisible hand can be justified: selfish utility-maximising behaviour can lead to a more optimal allocation of resources. This manifests in the ever-increasing ‘quality’ of bachelors and bachelorettes and the market’s ability to better match supply and demand. However, just as Smith’s original theory was halted by arguments on negative externality, we must too consider whether negative externalities exist within the dating market. The existence of negative externalities detriments the overall social welfare when no intervention is made against the involved responsible economic agents. 

 

Negative externalities: Why cheating on your partner is a market failure

Externalities are costs or benefits imposed upon a third party by an economic transaction that does not involve said third party as an economic agent. A traditional example of a negative externality is that of pollution; the people who suffer the health consequences of pollution are not necessarily just those who were involved in causing it. Externalities, whether positive or negative, are defined by either marginal social benefits/costs that are greater than marginal personal benefits/costs. It is hard to imagine however, that ‘transactions’ in dating (i.e., eligible bachelors/bachelorettes pairing up) have any social costs/benefits beyond personal ones. Of course, I believe that any typical ‘healthy’ mating behaviour in the dating market has a social effect that is non-existent at worst or and very highly positive at best (i.e., both parties within the couple pushes each other to improve/be better citizens/put greater effort into increasing societal welfare etc. Naturally, such is not always the case in the real life dating market. Although certain toxic relationship behaviour such as abuse are obvious examples of market failures, it does not always meet the definition of a negative externality as the additional cost imposed sometimes doesn’t affect any economic agents that aren’t involved in the relationship. However there is one clear instance where a dating market ‘transaction’ leads to a negative externality: cheating on one’s partner.

 

Role of the invisible hand in absence of negative externalities in the dating market.

For the purposes of this article’s discussion, we will define cheating on a relationship in a fairly narrow sense: when someone engages in a relationship (i.e., dating market transaction) with someone else whilst already having a partner. Naturally, the pre-existing partner of the cheater would definitely be hurt emotionally and potentially in other ways too (e.g., financially). As the person getting cheated on had no involvement in the cheating ‘transaction’ decision whilst still receiving adverse effects, the condition for negative externality is fulfilled. Adam Smith’s invisible hand theory fails to apply here as the hurt feeling of one’s partner is often not taken into account when someone cheats on their relationship (i,e., marginal personal costs/benefits are the only factors considered by the cheater when engaging in the ‘transaction’). Thus societal welfare is not maximised when absolutely selfish behaviour within the dating market leads to cheating

Although in our discussion hitherto we can safely assert that Adam Smith’s invisible hand cannot be universally applied in the dating market, I’d like to extend the discussion to explore its mechanisms in an idealised version of the market. In this ‘ideal’ model of the dating market, we assume that negative externalities do not exist. For example, we assume that all economic agents within the market derive negative utility from cheating on their partners. In this state, can we conclusively reason that Adam Smith’s invisible hand can be universally applied?

Even with the lack of negative externalities within the market, does the dating market achieve socially optimal equilibrium? Again, we can refer back to a simple demand-supply diagram. Socially optimal equilibrium means that everyone who is ‘transacting’ in the market (i.e., start dating each other) gets the goods and services which they want (i.e., an ‘qualified’ partner which fulfils their standards) and at the price which they can afford (i.e., they too fulfil their partner’s own standards). Adam smith’s invisible hand theory would mean that as this occurs, the eligible bachelors/bachelorettes who aren’t able to ‘transact’ and find a suitable partner either has standards that are too high (at a point on the supply curve higher than the equilibrium) or does not have much to offer to potential suitors (faces a point on the demand curve lower than the equilibrium). Clearly, at this equilibrium, not all economic agents have their individual utility and welfare maximised. However, when viewing this dating market model through an economic lens, we can say that Adam Smith’s invisible hand theory is achieved as the societal welfare as whole is as maximised as possible. 

            In short, Adam Smith’s invisible hand theory, although imperfect, can inspire some interesting explorations on the mechanisms of the dating market. The logical base behind the invisible hand definitely has its place when we study the dating market through an economic lens. However, the imperfection remaining reminds us that although both markets do bear some considerable similarities, their mechanisms aren’t one-to-one equivalence. Our future articles may explore some of these differences and how economic models can be adapted or have alternative interpretation so as to be of greater translatability to the dating market.

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