Economists in Love: Betsey Stevenson and Justin Wolfers

Betsey Stevenson and Justin Wolfers have a lot in common. They are professors at the Wharton School of the University of Pennsylvania. They write cool academic papers (seriously) about marriage and divorce, among other topics. And they have a daughter, Matilda. Currently, Stevenson is on leave from Wharton and is the chief economist at the U.S. Department of Labor. They talked to us about love, happiness and why they didn’t get married.

1) I recall Betsey telling me you two decided not to marry based on a cost-benefit analysis. Explain.

Justin: Because Betsey and I earn similar incomes, we would pay a marriage penalty.  The U.S. has a household-based taxation system which subsidizes married families when one person stays home and taxes most people extra if they choose to marry and both work full-time.  The average tax cost of marriage for a dual-income couple is $1,500 annually.  When our accountant ran the numbers for us a few years back we discovered marriage would cost us substantially more.  I love Betsey and all, but is the marriage certificate worth thousands of dollars annually?  I can love her plenty without the certificate.  But this isn’t just about a bean-counter saving his beans.  Truth is, I find it offensive that the tax man treats me differently according to a  very private decision—whether I marry or not.  And so I prefer to remain unmarried, at least in the eyes of the tax man.  And I would also be more sympathetic to the formal legal institution of marriage if it were open to all couples, not just straight couples.

Betsey: It’s not all taxes and politics.  It’s also contracts.  Marriage is a contract between two people about how to organize their lives together.  But modern marriage is a one-size-fits-all contract—a default written by the state legislatures.  It makes no sense to me that I would want to sign the same contract with Justin that you sign with your partner.  So we didn’t take the standard off-the-shelf contract that we call marriage.  Instead, we’ve talked at length about what is important to each of us, and it’s that Betsey-and-Justin-specific agreement that guides our lives together.  And as anyone who has studied divorce knows,  the formal marriage contract doesn’t actually bind our future selves. But I have something far more enduring with Justin than a wedding certificate: We have an amazing daughter, who will bind us together for, well, until death do us part.

2) How is comparative advantage at work in your household?

Justin: The principle of comparative advantage tells us that gains from trade are largest when your trading partner has skills and endowments that are quite  different from yours.  I’m an impractical bookish Harvard-trained empirical labor economist, while Betsey is an impractical and bookish Harvard-trained empirical labor economist.  When your skills are so similar, the gains from trade aren’t so large.  Except when it comes to bringing up our baby.  There, Betsey has a pair of, um, endowments that mean that she’s better at inputs.  And that means that I’m left to deal with outputs.

Betsey: And it turns out that fathers can be pretty good at dealing with diapers.  I recommend this to all my girlfriends.  In truth we have specialized for years, but that specialization is pretty narrow.  I pay bills, Justin gives pills to the cats, etc.  But we don’t see productivity gains as being the main benefit of our partnership.  That model—the old Becker-style model in which one person specializes in household production while the other specializes in market production—is outdated.  Justin and I have emphasized in our research that technological change along with other societal changes have eroded the efficiency gains from marriage and increased the value of consumption complementarities.  So our partnership isn’t about getting more done through gains from trade, it’s about having more fun because we like the same things.

3) In many marriages, one party tends to be more risk averse. Is that true of yours and if so, how do you manage your disparate risk appetites?

Justin: We’re actually pretty similar in our risk tolerance.  For us, the tensions arise instead over our perceptions of risk.  For example, the military-industrial-parenting complex seems designed to make parents fear just about everything: vaccines, stranger-danger, toys made in China and so on. The great virtue of being empiricists is that we know how to resolve our disagreements: We go to the data. There’s a huge psychological literature showing that people worry disproportionately about salient but improbable risks—the kidnappings and poisonings that you read about in the newspaper.  But we are determined to counter this.  This is where expected utility theory gives us advice we actually follow in our lives: We agree that one-in-a-thousand risks are way more important—about a thousand times more important—than one-in-a-million risks.

Betsey: I’d say that I’m a bit more risk averse, but once we’ve sorted out the actual risk and the cost of protecting against that risk we find it easy to compromise.  For instance, I’m more concerned about having a lot of savings because I grew up with a family that had money problems later in life.  Justin is less so.  But Justin’s goal is to give a lot of our money to charity, which I agree with.  But we give less now so that I can feel more confident with the money in the bank.  The hope is we won’t need it and we will be able to give it to charity.  This compromise isn’t free—there are charities who could use more money today—but we were able to reach a compromise.  The important thing is to talk about the risk clearly—what do you think could happen, how likely do you think it is to happen, how would the protective action help?  I find that a lot of couples tangle all these aspects of risk up and therefore find it hard to negotiate because it isn’t clear what you are negotiating over.

4) Have you two ever discussed moral hazard as it relates to your relationship? If so, what did you determine?

Justin: Moral hazard reflects asymmetric information, such as when someone behaves differently—often selfishly—when they know their partner is unaware of their choices.

Betsey: And so we’ve eliminated the inefficiency caused by moral hazard, by eliminating the asymmetric info.  How?  We each have a commitment to telling the truth.  Tell the truth, and there’s no asymmetric info.  This sounds easy, but it means that we have an agreement that we tell the truth and we don’t have draconian consequences.

Justin: There’s something else sustaining that trust though.  We spend most of our time together—we wake up together, drive to work together, teach together, do much of our research together, socialize together and parent together.  There’s no asymmetric info when we can each see exactly what the other is doing.

Betsey: It’s more intense than that: I pay all the bills, and neither of us uses cash much.  It means that I pretty much know everything Justin is up to.

Justin: It’s true.  I remember when Elliot Spitzer was caught, in, err… a severe state of moral hazard.  My first response was: How did he get the money to pay for it?  If I were spending thousands of dollars on an out-of-state dalliance, Betsey would notice before the dalliance was over.

5) You two have studied happiness data. What happens to couples’ happiness when they have children? What happened to your happiness when you two had your daughter?

Betsey:  The stylized fact is that people with kids are less happy than people without kids.  It’s worse than that: parents are happier either just before the kids are born, or after they leave the nest; and even during any given day, parents are unhappy when doing childcare.  There was only one paper published that suggested kids made people happier, but the results turned out to be due to a coding error!

Justin: These aren’t just abstract issues either, we were actively reading this literature–and running our own regressions–when trying to decide whether to have kids.  In the end, we decided to try it out–despite the data.  By jingo, we are glad we did.  Our daughter Matilda has just been an amazing joy.  Truth is, our last year-and-a-half as parents has been the happiest period of our lives.  As empiricists we’ve learned that Matilda causes greater happiness.  Does this generalize?  We don’t know.  Personal experience is usually a dreadful guide to research–our lives as academics just aren’t representative of the lives of most people.  But in this case, we’ve become convinced that there’s a lot more work to be done in trying to sort out just what effects kids have on parent’s well-being.

6) How do you keep the romance alive? Or do you?

Justin:  By romance, you mean writing papers together, don’t you?  What could possibly be more romantic? Seriously, research shows that learning new things together is a crucial part of feeling fulfilled in your relationship and Betsey and I try to learn new things together every day.

Betsey:  Beyond that I think any new parent will tell you that it is hard to make time alone with a baby around.  Justin and I are so happy spending time together with Matilda that we’ve failed the number one advice for new parents: go out together without the baby.  But we do make time for each other in little ways.  A friend once sent me as a joke some offensive advice for wives written in the 1950s, but one part struck me as being adaptable to our modern times.  It told housewives to get ready for the husband’s arrival from work by putting on lipstick and disengaging from the work of the home to be able to focus on their spouse when he arrived.  What was offensive about this advice was that it was lopside.  In truth I think that both people in a partnership should take a moment to refocus our energy and be ready to fully engage with our partners and family members when we head home at the end of the day.  And sometimes this does mean that I put on lipstick.  But I know that Justin also pops a listerine strip on his way home.

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