How Ronald Coase can get you laid

Transaction costs may be the reason you're striking out with the opposite sex

Economics has much to teach us, as it is a discipline that transcends the boundaries of its traditional domains, offering its dazzling insights to people of vastly different professions. At least that’s what I used to tell girls. Ronald Coase, the Nobel-prize winning economist who recently passed away at the tender age of 102, may well have been a hit with the ladies during his day if he had applied his new institutionalist theories to the art of seduction. Believe it or not, there is much scope for adapting his intellectual legacies into answering the most important question of a young red-blooded man’s life: why do I keep failing miserably when I hit on girls in a night club?

Economist. Ladies man.

Economist. Nobel laureate. Ladies man.

Transaction costs explained

Coase may not have come up with the idea of transaction costs, but he was the first to offer a rigorous framework for its understanding. A transaction cost is essentially the cost of undertaking an economic exchange, one that is necessary to correct any market imperfection arising from that exchange. Bottled water is a fine example of this. How do you know that the water you are drinking actually comes from some natural spring in the Swiss Alps or is actually nothing but recycled toilet water? Most of us do not have a personal chemistry lab in our basement to test the purity of the water we consume; we must simply assume that the contents of the bottle are what the producer says they are. And the producer has all the incentive to cut down his costs by lying to us. Of course, consumers are smart enough to doubt the producer’s claims and will therefore not buy the bottle of water at all, thereby making such a market impossible to sustain.

As a result, producers invest in reputation. Evian spends millions on advertising and packaging to make you believe that the water does come from those paradisiac alpine springs full of yoga-practicing women. Additionally, both governments and producers invest in setting standards for products, and proper labelling to show that they meet those standards (each bottle of water has its nutrition data on the side). The result is that when you see that bottle of Evian on the shelf, you know it’s not toilet water because of all of these transaction costs incurred. Of course, these costs are naturally passed down to the consumer, which is why bottled water isn’t exactly cheap. On a more aggregate level, the total costs of transactions in an economy are huge. Douglass North, one of Coase’s new institutionalism disciples (and possibly my favourite economist of all time), estimated that as much as 45% of US GDP was devoted to transaction costs in 1970.

The “Radius of Fail”

It turns out that men are not unlike bottles of water, and women the picky consumers. A friend of mine was once telling me an anecdote about a male friend of hers who claimed that whenever he attempted to hit on a girl in a club and struck out, the young Casanova would be unable to get with any girl within a 5 meter radius. He called it the “radius of fail”. When I heard the story, I instinctively though of Coase because if there’s any good theory behind why this hapless fellow couldn’t rebound from his failure, transaction costs explains it better than anything else (sorry all you other social scientists, economics beats you hands down on this one).

Imagine that guy as the bottle of water. But there is no label and no government standard for knowing whether this guy is actually just a luckless charmer or actually a colossal douchebag (I assume that being the friend of my friend, he was the former). The cost of finding out would therefore be significant. A girl would first have to accept his pick up line and agree to dance with him. Will he be a Patrick Swayze on the dance floor or will he be doing the bump and grind before he even knows her name? They would have to talk a bit too. Will he have grace and wit, or will he have the charisma of a bullfrog? And lastly, if the night were to continue elsewhere could she tell that he will behave like a gentleman or a serial rapist? As you can see, such as simple thing as a nightclub fling carries with it enormous transaction costs (in this case, a search cost). So rather than take the risk, why not have someone else take them for you? The result is that the first girl that gets approached unwillingly pays the transaction cost for all the others who may have otherwise had an interest in him; when she rejects him, all the other girls who witness the event will think “there must have been a reason for it” and forego his subsequent advances.

You have it there that striking out with the ladies in the nightclub early in the night can have terrible effects for a guy’s success as the night progresses. But by knowing about transaction costs and understanding that they are present even in the realms beyond economics, one can learn avoid the pitfalls of youth. In this guy’s case, he should have immediately left his “radius” once he got rejected once so that his reputation would have not preceded him. Or he could have tried hitting on girls that were not surrounded by other potential prospects (hit the pretty one in the ugly pen!). Or, he could have used the best and most sensible strategy of them all. A strategy that all real life Don Juans must have figured out at some point, and which involves using transaction costs in your favor rather than against you: take a wing(wo)man. Preferably a pretty one. Preferably more than one. Because surely a single guy who is surrounded by good looking women has to have something going for him, right?

Thank you Ronald Coase.

3 thoughts on “How Ronald Coase can get you laid

  1. Pingback: The Efficient Market Hypothesis and its toxic fallout | disequilibrium.org

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