The Economics of Valentine’s Day
If you’re the average consumer, you’ve spent an impressive amount of money during the lead-up to this Tuesday’s holiday, Valentine’s Day—or as it’s more cynically known, National Singles’ Awareness Day. According to a recent report by the National Retail Foundation, Valentine’s Day is one of the most commercially successful holidays of the year, with an expected $18.2 billion of revenue raked in by US retailers. Last year’s average US consumer spent $146.84 on Valentine’s Day chocolates, roses, dinners, accommodation, and jewelry. The statistics for Canada are similar: expected spending was $164 CAD per person.
It seems surprising that such an enormous amount of money could be made off a holiday with relatively humble origins. Valentine’s Day, or the Feast of Saint Valentine, started off as a Catholic celebration of a mysterious martyr, whose identity is unknown but for whom we have three contenders: the Valentines of Rome, Terni, and Africa. Little is known about each of these saints besides their martyrdom, but plenty of legends have filled in the details. The most popular story, found in Bede’s Martyrology and Passio Marii et Marthae, features Valentine of Rome. After being imprisoned for his faith by the Emperor Claudius, Valentine is said to have miraculously healed his jailer’s blind daughter, and thus converted her entire family. On the eve of his execution, Valentine allegedly wrote a last letter to the girl and signed it, “Your Valentine,” a gesture which gave birth to the modern tradition.
Unfortunately, this sweet story has little historical evidence. Hand-written valentines didn’t surface until much later, after Geoffrey Chaucer and his fourteenth-century contemporaries linked the celebration with the idea of courtly love. Supposedly, February was the start of birds’ mating season, and this atmosphere naturally lent itself to other warm-blooded creatures getting it on. The earliest written valentine dates from the century following Chaucer, when the Duke of Orléans wrote a rondeau to his wife from the Tower of London. 50 years later, the first English valentine appeared in the letters of Margery Brewes, to her future husband. From there, hand-written love notes for the Feast of Saint Valentine managed to morph into the mass-produced, highly-lucrative Hallmark cards of today, now accompanied by billions in lovers’ expenditure.
180 million of these cards are now sold annually, according to a survey done by the Retail Advertising and Marketing Association. 46.9% of consumers expect to purchase one for today’s celebration. Other popular gifts for Valentine’s Day include an evening out (36.6%), flowers (34.7%), and jewelry (18.7%) (NRF). But by far the most popular choice is candy, with 49.7% of consumers planning to purchase some this year. The Hershey Company alone produces over eight million pounds of Kisses for Valentine’s Day, which according to this article in Time magazine, takes almost a month to produce at typical output rates. Closer to home, Thomas Haas Chocolates on Broadway sells 15,000 chocolates each week in the month leading up to Valentine’s Day (The Province). Candy companies aren’t the only ones to profit; the RAMA survey also states that about 198 million roses are grown annually for the holiday. Put them at an average of $3 to $8 per stem, and that becomes revenue of between $594 million and $1.584 billion (Business Insider).
All this consumption, however, isn’t rooted in an even spread of cash outflow. A 2016 survey from RetailMeNot.ca reveals that Canadian men expect to spend $219 on their significant other, while Canadian women only expect to spend $109. Apparently all is not fair in love and war; both genders agreed that women are far more spoiled than men for the holiday.
So what’s the reason for this romantic confetti of dollar bills lovingly thrown at retailers on February 14? According to an article by Marina Adshade, a UBC professor who specializes in the economics of love and sex, Valentine’s Day may really be a signalling device. Couples use it as an opportunity to determine the commitment level of their partner, and they do it by gift-giving.
Here’s a hypothetical scenario. Say you’ve been in a relationship for a few months. You’ve been going on regular dates, they’ve met your parents, and things seem to be progressing well. But how can you tell what they’re thinking? Of course you could ask, but then you’re confronted with an information problem; what guarantees that they’ll tell you the truth if they don’t know what you’re thinking? A second option is to wait and see if they make a move to demonstrate their commitment—for example, buying an expensive gift on the internationally-recognized day of love. This tells you that they’re invested—certainly financially, and hopefully emotionally.
Adshade goes on to explain that this commitment game happens to also be a Prisoner’s Dilemma. Each partner has the option of buying a gift or not—there are of course levels of gifts, but we will simplify the game. There are three outcomes. The first is that one partner buys a gift and the other doesn’t. This sends the signal that levels of commitment differ, and the relationship is unlikely to last (especially when, according to WalletHub, 53% of women say they would break up with a guy who didn’t get them a gift for Valentine’s Day). A second outcome is that neither partner buys the other anything. This is the most economically efficient, but it isn’t a likely result. Each partner is concerned that the other will purchase a gift, see them as uncommitted, and potentially end the relationship. Their fear will motivate them to buy a gift, which leads to our final and likeliest option: two-way gift giving. This is the Nash Equilibrium, where each partner is doing the best that they can given the other’s behaviour, and it is the likeliest outcome of the game. However, the couple’s reassurance comes at a cost—namely, the cost of the roses, chocolate, a foot massage, or whatever else it was that they bought each other. These are gifts we rarely buy for ourselves, which indicates we don’t value them as much as they cost. Their purchase by a partner means deadweight loss and resultant economic inefficiency.
So what does Valentine’s Day teach us? Not only does the course of true love never run smooth, but it also requires some twisty strategizing and heavy financial investment. Relationships aren’t just a bed of roses: they require jewelry, chocolate, candlelit dinners, and a whole lot of lucrative consumption. Perhaps that thought will comfort all you singles out there who are contributing to the 20% increase in new Match.com profiles this week. If it doesn’t, check out ten tips from economist William Nicolson on how to rationally beat the love system. And if you need a nice card to pick up that significant person in your Microeconomics class, check out the ones below from analyst and visual designer Liz Fosslien. They’re sure to make an impression.