This is the last of the deleted blogs….. and I’ve deleted this blog too many times because I was not happy with the content; I still am not and I apologize
Walking in the corridors of a university is enough for you to get a glimpse of both worlds, heavens and hell. You meet people, some with beautiful souls, and some probably not. Even though humans are capable beings and can achieve great things because of their extraordinary minds, they cannot live in solitude. Simply put, humans are social beings. With the common mindset driven for wealth accumulation, I’ve always wondered how friendships are formed and how they are carried on and why some friendships fail. Even though the topic itself seems so broad and feels not-so-related to economics, today, we’ll be looking into economics of friendships, at least of the friendships that are not so complex. Hope you like it.
According to Aristotle, friendships are of 3 types. For entertainment purpose, usefulness and friendships that are hard to define, rather the true friendships. The first two types are quite rational whereas the other is quite irrational and I’m yet to understand this type of friendship. You push your personal boundaries without a reason and if you ask a person why you are friends with this person “X” and if you cannot find a specific reason, then you probably have the best kind of friendships. If you are nervous the entire day about your friend facing an exam, or taking a flight you are in the best kinds of relationships; the irrational ones.
Friendships built on a purpose like for entertainment and usefulness are like transactions (I do agree that there can be meaningful friendships too where you can enjoy and party, so I won’t be referring to those in today’s blog). You identify a person and invest on the person hoping that you would find some usefulness from the relationship and also I’ve seen friendships which are literally like bank accounts (;D)
For explaining purposes I identify three stages of friendships.
- Identifying a possible candidate.
- Build a positive relationship.
- Following up or ending it.
This can be daunting depending on which side of the world you are in; hell or heaven. In preliminary stages people tend to find friends with common interests, which is called “Homophily” in behavioral economics. Geeks finding geeks who attend for comic-con, similar interests in songs and dancing partners are some examples. But once you mature, you tend to find friends whom make you whole, who fill in the gaps of your life and people whom you really admire. This can be achieved through “hit and miss” approach where the results can go either way. This stage is based solely on the purpose of your friendship; whether you are seeking a long-term friendship or a short-term one.
Life is full of choices. This is mainly due to the scarcity of resources. So what you do is you optimize or satisfice utility. (Satisficing is the behavior that aims for an adequate result rather than going for the optimal solution. This term is a substitute in Behavioral Economics for optimization in mainstream economics) Assuming you have two close friends you optimize your utility with Cobb-Douglas utility function assuming that these two friends make your life whole. This function is subjected to constraints such as time, boundaries you create to protect your privacy and sometimes money.
(A Cobb-Douglas utility function is a form of a function where utility = x^a y^1-a where x and y are utilities of two goods. The utility of two goods is equal to one which maximizes the utility of a person)
Curves AB, CD and EF are constraints where time and money is taken into consideration. The curves Q1, Q2 and Q3 are indifference curves where the pleasure(utility) you gain from spending time with your 2 friends are the indifference(similar) along the curves. where Q1 < Q2 < Q3. When the indifference curve meets the budget constraint, that is the point you decide the amount of money you are going to spend or the number of hours you are going to spend on your friends. Even though budget constraints have its limits, it is the way you move on further with the relationship taken a lot of things into consideration.
R1, R2, R3 are the points which intersects the indifference curve (which symbolizes the utility one gains out of friendship) and budget constraints (which symbolizes the time, energy and money a person is obliged to spend on friends). At these points, you get the maximum utility given corresponding budget constraints; in this case time, money and energy etc. Once you get to know the correct amount of resources you spend, you get a pretty good flowing friendship; but what kind of friendship doesn’t have a few bumps on the way?
Now that you have some momentum built on your friendship, with time and other factors such as change in the work environment and few bumps on the way makes you decide if this friendship is worth keeping. At stage 2, you were at an equilibrium, where marginal benefits (MB) was equal to marginal costs (MC). But in the 3rd stage, with changes in work-environment, and other factors you decide if you should invest more and if it is worthwhile. Some friendships, which depends merely on usefulness, gradually decreases with time as diminishing marginal utility and fades away with time. I’ve thoroughly enjoyed human versions of “cat fights” where best friends have become worst enemies which is quite a dangerous situation if the so-called friend knows a lot about you. On rare occasions, you will find true friends who will stick with you no-matter how annoying you seem to be.
Friendships are hard to be understood in a science where everything is understood “give and take” mechanism. However, there are friendships that symbolizes “bank transactions”….. which can be understood via economics. I am yet to understand what the meaning of a true friendship is; which is quite irrational and hard to model. If you have a friendship which is based on mutual understanding, you’ve got the best!
Sincerely dedicated to Harini, Pramodha, Dilshani and Mandree…. and all my dearest friends whom are a call away…..