Wednesday, September 23, 2009

Advice from economists: don't buy an expensive engagement ring

Tim Harford provides the history behind the engagement ring. The conditions that he says explain the practice no longer seem relevant, and yet, now the the engagement ring is a well-established cultural norm. Norms can change, though, should we start trying to change this one? The engagement ring seems to violate one of the principals of optimal relationship gift-giving I discussed in this old post.

Q: It doesn’t seem rational for a young man to give his girlfriend an expensive engagement ring when he proposes. My thought is that the most efficient use of that dollar is to invest it into something that a young couple would value most e.g. a down payment on a first house, etc. The diamond market is a monopoly and diamond prices are manipulated so that prices are always high. Can you construct a concise and logical argument that young men across the world can use to not buy diamond rings? After all, you already are offering the most valuable thing that you have (your heart) to your soon-to-be bride. In this age, why is a token like an overpriced rock still needed? — Hollins

A.

You have a point. Engagement rings took off in the U.S. when the courts refused to hear “breach of promise” lawsuits. These suits were brought by women who had slept with their fiancés and then been abandoned. These women were then less attractive marriage prospects for anyone else.

Naturally, such lawsuits were sensational fun for the newspapers, and eventually the courts put a stop to the whole thing. The problem then became: how could a young affianced couple have sex with each other when she had no recourse to the law if he changed his mind? Both of them might well want to, but for the lady the risks were pretty high. And so the institution of the engagement ring came about. Such rings are non-returnable, meaning that if the man breaks off the engagement he doesn’t get the ring back. The system discourages him from running off and provides automatic compensation if he does. Very clever.

Given all this history, I tend to agree with you. Tell your girlfriend that you doubt she is a virgin and don’t care much either way, and you will thus be spending the engagement ring money on something more useful. Be sure to let me know how it works out for you.

Comments:
but this comes down to a question of measure the unmeasurable. it's hard to compare what a diamond ring means to a girl with the value of a house. yes a house is more practical and more meaningful to THE couple, but to some girls, a diamond ring might mean more than that, esp when every other engaged girls are wearing one.

a part of what diamond ring means affected by the fact that "it's a norm", so before we start changing the "norm", we need to change how much girl value them, which is partially determined by the "norm".
 
I agree with Shelley about finding out how much a woman values the ring. I think it's very important to have people (stereotypically mostly women) make the conscious effort to compare the marginal utility of another good of the same price (house payment, fun vacation) to the utility they gain from an engagement ring. Personally, I believe I would gain 0 utility from an engagement ring, so it would be nice to have the utility discussion before a proposal--very romantic!
 
Sure, engagement rings are an anachronism that serve no economically rationale purpose. However, so are elaborate weddings, or any other ceremony for that matter. (Does walking across a stage in a silly cap and gown really add anything to your college education?) So why do we persist with all the excessive spending and pomp and circumstance? Perhaps because these things provide an additional source of tangible validity to our actions with which we can show and share with others. Most decisions we make are not rationale from the cars we drive to the food we eat. Why would engagement rings be subject to greater criticism? What truly matters isn't the ring on your finger, but who and what it represents.
 
It's interesting to read about people suggesting we abandon the tradition of the engagement ring. In my game theory class last year we talked about how a man should spend about a third of a month's salary on the engagement ring.
I like Leah's point about looking at the utility the ring brings, but going back to Shelley's point about it being a social norm, I think women tend to believe that there is utility in the ring. And in a way I think the men gain utility from the ring as well.
If there was no utility to be gained from the engagement ring, I don't think the tradition would still be around.
However, if the utility of making a down payment on a house is greater than the utility of the engagement ring depends on the individuals and their personal values.
 
If your lady is more worried about the ring than making an investment like purchasing a home you are in for a hellish journey, better to just kick her to the curb now.
As a married man I spent 100 bucks on my wife's wedding ring and 40 bucks on mine; the wedding itself cost about 150 bucks as we had a simple ceremony at a state park on the shores of Lake Tahoe.
My wife did not get an engagement ring, I guess you could say we used the money we saved to buy our first home. To each their own, buy a ring if it makes her happy.
 
I agree with that. Engagement rings served a purpose at that time, but now they have no purpose except that it serves as a norm. I believe that the money used for the engagement ring can be used to invest in something that benefits both the man and the woman who are planning to get married.
 
The ring implies how much a person value his potential wife. For average people, fancy rings cost more than two months salary. If a potential wife really cares about their happiness, then she might want to consider spending the money on something more useful for the potential family.
 
Message to the wise: Don't get married to the girl who is more interested in the cost of the ring than the person giving it to her.

It shouldn't matter how expensive an engagement ring costs. Can you really put a price on love?
 

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