The Stern Opportunity

Despite the warily opportunistic relationship articles I’ve written thus far as a b-school student, I am a hopeless romantic, who couldn’t be more excited about my favorite holiday: Valentine’s Day, the day of love.

No one can deny how this holiday, and all others associated with Hallmark cards, are shamelessly milked for all their consumer selling potential. With that said, let’s get to the heart of Valentine’s Day: do people behave rationally and try to maximize their return on investment when it comes to love? What’s the best way to do so?

Everyone knows about the risk and reward structure. No reward without risk. Yet a few questions come to mind when testing this in the relationship domain:

To love or not to love?

After heartbreak, it’s easy to swear love off, or regret ever even meeting that person.  Sound familiar? According to Kahneman’s (along with Tversky) prospect theory, people experience loss aversion. People are less likely to take a bet and thus avoid losses, as opposed to the possibility of gains. Some studies suggest that losses are even twice as powerful, psychologically, as gains. Loss aversion leads to risk aversion, so is it truly better to have loved and lost than to never have loved at all? Most people believe this adage. Why risk getting your heart crushed and date around when, in all probability, you’re just going to lose the one you’re with? Seemingly irrational, is it really worth it? Since people are predisposed to loss aversion, it highlights how large of a barrier must be overcome to give love a shot.

Does avoiding trading costs drive long-term commitment?

Once you have given someone a shot, what exactly drives “success”? What makes him/her stay with you through the good and the bad? With the ups and downs of the financial markets, investors tend to buy and sell any given stock more often than they should; most who succumb to the temporary hiccups of a stock tend to underperform those investors that maintain a buy and hold strategy. Similarly, dating a number of different people can get exhausting, as well as costly. “Must take her out to a nice date. Must buy her flowers. Must get her jewelry and nice gifts.” Do men tend to settle down into a buy and hold strategy, i.e. marriage, simply for wanting to exit the dating market and its high trading costs? Are relationships a matter of convenience, a simple cost minimization strategy? Though rational, it doesn’t seem to be the most romantic of theories, does it? 

Best time to pick up undervalued stock?

Once you’ve achieved a steady relationship, you’re golden, right? Not so fast. What if it goes sour? When investors stick with a losing stock, it can be hard to let go. One bad turn after another, they say to themselves, “Stock’s going to turn up, just give it another week or two.” Even if they’ve finally accepted the converse, investors are inclined to let go of the relationship during December, as if this is easier to realize their losses at year end. Thus, you have the January effect: the opportunity to buy oversold stock. Similarly, say you are in a relationship that’s less than ideal. Is there an increase in the amount of breakups before Valentine’s Day and thus a higher likelihood of rebound relationships after V-day? As a ray of hope, this could be your opportunity to find that diamond in the rough that didn’t quite fit into someone else’s portfolio.

Okay enough with the b-school theory musings hinting cynicism of true love. How about some tips to assuage the worries of the rest of the doe-eyed men and women who still have faith in Cupid’s aim and pick? Or, more aggressively, those who steal the bow right out of Cupid’s arms and put their fate in their own hands?

Take advantage of a more useful heuristic

As Kahnmeman has discovered, we use all sorts of shortcuts, or heuristics when making decisions. As Okun says about business, you would be an idiot to pick a level playing field. When trying to reel in your target Valentine, make sure she or he is aware of how you stack up to the competition. Stack the odds heavily in your favor by highlighting massively unattractive, unintelligent, and uninteresting options. Use the anchoring heuristic by showing that compared to these, you are heads and shoulders better, and thus the best option for a Valentine, and consequently, a date for the evening.

Use informal networks to strengthen the possibility of long-term success

In joint ventures, companies that know each other through informal networks are less likely to depend on external monitoring/agency controls to ensure an alignment of behavior. These companies are less likely to have equity stakes, or voting rights. Similarly, rumor has it that the best way to find people to date is through friends. Dating friends of friends provides both an initial test for similarity of background, values, and interest, and the necessary informal monitoring network needed to make sure you don’t get screwed over and hit up as a one night stand. 

Timing is key: Carpe Diem

In life, success is said to be founded on being in the right place, at the right time. Tangentially, throw risk aversion out the window, and try your luck at love. Seize the day.

Risk is not a bad thing. In matters of the heart, and the gut, halfway is not going to cut it. For entrepreneurs who give it their all, most know the failure rate rests at about 70% (of companies will not be around in 4 years). Yet, they take the risk. As most serial entrepreneurs can attest to, you must get in quickly to exploit the market opportunity, and know also when to get out to pursue another better venture. One reason why it is better to have loved than to never have loved at all is the learning and growth that results from it.

Don’t fall for gambler’s fallacy – the myth that after a series of bad hands you’re bound to have a good hand next – or vice versa, that after a period of good luck, you’re due a bad hand. Each hand dealt, comes with it a new opportunity. Without risk, there is no reward. If there’s a crush you’ve been dying to express interest in, or a friend that you yearn to be a little something more, act now. Let Valentine’s Day be that foot in the door to capturing this market opportunity while your crush is primed with the idea of love. Maybe Chernoff’s poker teaching workshop could provide some inspiration at better reading the “players”. The best way to tackle love is through experience; you are continuously learning, and even enjoying yourself in the meanwhile. Go ahead. Send that box of chocolates, bouquet of roses, or gushy love letter. Go all in! 

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