A banker's perspective: "Why do we get into relationships?"
It is a question that I have often wondered about. Why do we get into relationships? Why do we marry and stay (hopefully) with one person all our lives? This sort of behaviour always seemed highly unnatural to me. I don't think the concept of monogamy exists in other animals and no matter how much we curb our animal instincts and no matter how much our intellectual capacity evolves, we still are nothing but animals at the end of the day. So why do we choose to do things that are unnatural to us?
Of all the places that I could've found the answer to the question in, I found it in finance. You see, finance and banking are a lot more intrinsic to humans than we give it credit for. If you want to get something, you take a risk to get it. If you are too scared to take that risk or if you're worried about failing to get it, you hedge against it. As a result, you lose a part of the rewards of that risk but minimise your potential losses at the same time.
The reasons for getting into relationships aren't any different. "The something that we want" is nothing but sex and companionship. In order to get it, we take risks. We go out on dates, we socialise with the opposite/same sex (depending on one's sexual orientation) etc. Basically, we put ourselves out there. That is the risk we take. There is a reason I call it a risk. Opening up to people and talking to them about yourself means that they get to know things about you - some interesting, some funny and others embarrassing. When you share you thoughts, feelings, views etc. it makes you vulnerable. Hence, you expose yourself to some risk as you go through this process.
Now the general principle of finance is the same as in life. Higher risk reaps higher rewards. The more we go out, the more we put ourselves out there, the more we get in return. The more people we get to interact with, higher are the returns i.e. physical and/or emotional satisfaction (depending on each person's personal needs). However, the appetite of risk for each person is different and at a certain level, everyone starts feeling the need to hedge themselves. This hedge, I believe, is a relationship.
Hedging ensures that our losses are minimised while compromising on our potential gains. This is what we do when we get into a relationship. Instead of putting ourselves out there in front of multiple people, we reduce it down to one person. This limits our potential gains as well. Instead of deriving utility of emotional and physical satisfaction from multiple people, we get it only from one person only. At the same time our losses are minimised. In case it doesn't work out, our exposure is just limited to one entity i.e. we made ourselves vulnerable to only one person.
Another key reason why we get into a relationship is to maintain a steady stream of returns instead of a highly volatile one. This is called reducing volatility risk. Higher risks also come with higher volatility in returns. Sometimes your returns will be beyond normal expectations (supernormal returns) and sometimes your returns could even be negative or zero. On the contrary, a hedge ensures that your future cash flows are a lot less volatile in nature.
In finance, if you focus on 1 particular asset, you try and predict the expected returns on historical behaviour of your assets. With time, you gain more expertise with that asset class and using this experience, you are able to reduce your volatility in returns from that asset class by trading more effectively. Similarly, once you get a fixed partner, that person becomes the centre of your focus. He/She becomes that asset class whose behaviour you can more or less anticipate and predict with time (based on historical results i.e. fights/amazing love making sessions etc.). Hence,you are able to reduce volatility in fulfilment of the needs (physical/emotional) that you derive from your partner. You can anticipate possible fluctuations based on historical incidents and take a position accordingly. For example, if he/she doesn't like a friend of yours, you strategise to minimise interaction between that friend of yours and your partner.
So just to sum it up, I've come to realise that relationships are nothing but an effective hedging strategy that humans employ at a personal level. This is done mainly for two reasons:
"Of all the places that I could've found the answer to this question in, I found it in finance"
Of all the places that I could've found the answer to the question in, I found it in finance. You see, finance and banking are a lot more intrinsic to humans than we give it credit for. If you want to get something, you take a risk to get it. If you are too scared to take that risk or if you're worried about failing to get it, you hedge against it. As a result, you lose a part of the rewards of that risk but minimise your potential losses at the same time.
The reasons for getting into relationships aren't any different. "The something that we want" is nothing but sex and companionship. In order to get it, we take risks. We go out on dates, we socialise with the opposite/same sex (depending on one's sexual orientation) etc. Basically, we put ourselves out there. That is the risk we take. There is a reason I call it a risk. Opening up to people and talking to them about yourself means that they get to know things about you - some interesting, some funny and others embarrassing. When you share you thoughts, feelings, views etc. it makes you vulnerable. Hence, you expose yourself to some risk as you go through this process.
Now the general principle of finance is the same as in life. Higher risk reaps higher rewards. The more we go out, the more we put ourselves out there, the more we get in return. The more people we get to interact with, higher are the returns i.e. physical and/or emotional satisfaction (depending on each person's personal needs). However, the appetite of risk for each person is different and at a certain level, everyone starts feeling the need to hedge themselves. This hedge, I believe, is a relationship.
Hedging ensures that our losses are minimised while compromising on our potential gains. This is what we do when we get into a relationship. Instead of putting ourselves out there in front of multiple people, we reduce it down to one person. This limits our potential gains as well. Instead of deriving utility of emotional and physical satisfaction from multiple people, we get it only from one person only. At the same time our losses are minimised. In case it doesn't work out, our exposure is just limited to one entity i.e. we made ourselves vulnerable to only one person.
Another key reason why we get into a relationship is to maintain a steady stream of returns instead of a highly volatile one. This is called reducing volatility risk. Higher risks also come with higher volatility in returns. Sometimes your returns will be beyond normal expectations (supernormal returns) and sometimes your returns could even be negative or zero. On the contrary, a hedge ensures that your future cash flows are a lot less volatile in nature.
In finance, if you focus on 1 particular asset, you try and predict the expected returns on historical behaviour of your assets. With time, you gain more expertise with that asset class and using this experience, you are able to reduce your volatility in returns from that asset class by trading more effectively. Similarly, once you get a fixed partner, that person becomes the centre of your focus. He/She becomes that asset class whose behaviour you can more or less anticipate and predict with time (based on historical results i.e. fights/amazing love making sessions etc.). Hence,you are able to reduce volatility in fulfilment of the needs (physical/emotional) that you derive from your partner. You can anticipate possible fluctuations based on historical incidents and take a position accordingly. For example, if he/she doesn't like a friend of yours, you strategise to minimise interaction between that friend of yours and your partner.
So just to sum it up, I've come to realise that relationships are nothing but an effective hedging strategy that humans employ at a personal level. This is done mainly for two reasons:
- To reduce the potential losses from putting oneself out there while compromising on the all potential gains that can be derived by that act i.e. hedging.
- To reduce the volatility in returns, if and when one makes that investment. That investment is the time and effort one spends with his/her partner. One would want to reduce volatility in the returns (satisfaction of one's needs) that he/she derives from that investment.
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