National Statistics reports that the number of people cohabiting has risen sharply in recent years, whilst the numbers marrying have fallen. Why? Options pricing can shed light.
Think of cohabiting as a call option on a desirable marriage, where this means being hitched to the best available partner. An increase in the number of people cohabiting is a sign that the value of the call option has increased.
Why? Basic options pricing says that a call option becomes more valuable with time - the longer it has to expiry, the more chance there is of it becoming in the money (ie worth exercising) - and with volatility; the more volatile a share is, the more chance it has of becoming in the money, and so the more valuable is the option.
Both these forces might have increased the value of the call option of cohabiting.
Take time. Think of this not as a fixed period - a day, year - but rather as the quantity of stuff that happens. In particular, think of it as the number of people you meet; the more you meet, the more time there is. So if you meet 10 people a year, you have more time than if you meet five.
The more people you meet, the more valuable is the call option of cohabiting. This is because such encounters will either confirm your belief that your cohabitee is "the one", or give you more chance of meeting the person who is. Either way, the chance of your option being in the money - that is, your prospects of getting hitched to Ms Right - has increased.
I suspect that the number of people we meet is greater now than years ago - partly because workplaces have become less gender-segregated. If so, the call option of cohabiting has risen, ceteris paribus.
Now take volatility. The analogue to share price is uncertainty about other people's character; the more uncertain we are about other people, the more valuable is the call option of cohabiting. This is partly because there's more chance we'll learn that our cohabitee is not "the one", and partly because there's more chance of us finding that someone else is.
So, here's a theory. Other people's characters have become less predictable, or more changeable, down the years. "You've changed - you're not the person I married" is a cliche today. But you can never imagine Celia Johnson saying it in Brief Encounter.
Maybe increased anomie, the decline of social capital or greater geographical mobility makes it harder to learn about people's character because we know less about their family, where they're coming from. Or perhaps - if you believe the managerialist rhetoric - a faster pace of change means that people really do change.
Whatever, the resulting uncertainty increases the value of the call option of cohabiting, relative to the value of exercising it by marrying.
I know there are other explanations for the rise of cohabiting, but I don't know if they are as interesting.
No, it's just that marriage is an outdated institution that doesn't meet people's needs and society is moving on :)
Posted by: Steve B | October 04, 2007 at 12:44 PM
Moving on to what Steve B? And is it better? And you have empirical evidence for that?
Posted by: Recusant | October 04, 2007 at 01:05 PM
"if you believe the managerialist rhetoric - a faster pace of change..."; yes, that is a particularly tedious fantasy, isn't it?
Posted by: dearieme | October 04, 2007 at 03:14 PM
You would interpret human relations in terms of economics?
Posted by: jameshigham | October 04, 2007 at 03:49 PM
In terms of rational activity, for a group, certainly.
Problems occur only when you forget that individual mileage may vary, and Pareto-optimal solutions still have negative consequences for some.
Posted by: Ken Houghton | October 04, 2007 at 04:36 PM
In our case, it's a rational decision - put money into a house or into a wedding. Since putting money into the house is an investment, while putting money into a wedding is literally pissed up the wall, it's obvious what you'll choose. We can build a reasonable sized extension for what some friends have spent on weddings. Blame, therefore, the rise in house prices that makes a choice necessary.
Don't tell my partner this, though. Anyway, with Cameron around I quite like batting for the cohabitation team, just to upset his statistics - we've been together nearly nine years, after all.
[I recognise the obvious flaw in my argument is that you don't *need* to spend ten thousand quid on a wedding, you can pop down the registry office and get it done in half an hour, but that runs up against the fact that marriage is more important than that for a lot of people, particularly females who've seen their friends have big weddings. Societal norms, again.]
Posted by: Tom | October 05, 2007 at 09:14 AM
The opportunity cost of marriage has gone through the roof though. Divorce means losing at least half of all you ever owned and all you will ever earn, plus spending every other weekend in a theme park with your kids. Also, if Ms right turn out to be Ms right tart, your attractiveness as a mate to any potential Ms right the second is seriously degraded.
Posted by: Matt Munro | October 05, 2007 at 11:13 AM
I don't agree with this socialist "society has moved on/marriage doesn't meet individual needs anymore" argument. Mariage is a societal, not an individual need, and the "need" is for people to procreate in socially efficient units, co-habitation is hugely inefficient and simply makes people (especially women) more dependent on the state.
Posted by: Matt Munro | October 05, 2007 at 11:17 AM
Anyone interested in how certain forms of breeding behaviour evolve should read "Cuckoos, cowbirds, and Other Cheats" by Nick Davies.
In particular, "Wood Ducks: Nest-Box Chaos" (p231) which demonstrates how the tragedy of the commons applies to breeding birds.
It isn't sensible to be too exact in applying bird behaviour to humans, but the way breeding behaviour is determined by the bird-economics of a species' circumstances won't be lost on anyone who reads this blog.
Posted by: Dipper | October 07, 2007 at 09:48 AM
The conclusion must be that birds are expensive.
Posted by: dreamingspire | October 08, 2007 at 06:13 PM
If our partners' personalities have become more volatile, maybe our own have as well. (In the aggregate this is of course the case.) So maybe the volatility that has raised the option's value is our own future selves. I don't know what I will be like in 10 years, and I might not like this person -- but maybe it's because I change, not because he/she changes.
Posted by: Andy | October 13, 2007 at 05:26 AM