Dear Economist

A Decent Proposal

Dear Economist,
I’ve been seeing my girlfriend for the past three years, and we’ve been living together for the past 18 months. I just can’t decide whether to propose to her this Valentine’s Day, or wait until next year. What would you suggest?
Yours sincerely,
Mr C. Johnson, Bristol

Dear Mr Johnson,
Evidently you intend to marry this lucky girl eventually, since your question implies that whether you propose now or later, the expected net present value created will be positive.
As the poet Andrew Marvell once explained, value-creating moves usually should be made sooner, rather than later, since time’s winged chariot hurries near. But Marvell failed to anticipate advances in real option theory which demonstrate that it can be worth delaying decisions to obtain more information. You need to weigh up the cost of delay against the value of waiting to gain new information.

The cost of delay is small if you are young and patient. The value of waiting is large if you have the kind of exciting relationship where every day you learn something new about your belle. This is why young people are often counselled against rash betrothals.

On the other hand, you’ve been living with the girl for a while. Perhaps another year is unlikely to bring important information. If so, what are you waiting for? This reasoning has served your correspondent very well.

There is another important consideration: the window of opportunity for exercising an option can slam shut, in which case the option value is zero. There is no point learning everything you need to know to propose, if on Valentine’s Day 2006 your girlfriend is dating somebody else. Before you decide to wait another year, it might be wise to be sure that she will wait too.

First published at ft.com.

12th of February, 2005Dear Economist • Comments off