Many of you may be familiar with the term “friends with benefits”. If you are not it is likely because you’ve been in a stable committed relationship for the last few decades. Friends with benefits are two consenting people that agree to enjoy the physical pleasures of a relationship without all of the emotional bonds or sense of commitment. In other words, it’s a friend you hook-up with but don’t have to date.
Mutually exclusive is a term that has an official definition; which is “unable to both be true at the same time”. An example of a mutually exclusive event is a light switch. It cannot both be on and off at the same time. Friends with benefits is a paradox of mutually exclusive events. How is it possible that you can have “relations” with someone and not be someone emotionally involved. Even if that emotion is superficial (ie she’s really hot) it’s still an emotion. You’re also emotionally comfortable with the person enough to at least be intimate with them, that’s another emotional connection. So despite one’s desire to remove emotion and commitment, you’re actually emotionally committed.
But what does this have to do with money? The friends with benefits paradox illustrates what many of us try to do in our personal financial lives. Every time you make a deposit into your Roth IRA when you still have student loans to pay off you’re making a mutually exclusive decision. You have $1,000 that could go towards retirement or student loans, but it cannot go to both. The choices are mutually exclusive.
However like friends with benefits, we try to arbitrage mutually exclusive decisions.
- Should I date this person and hook up with them, or do we just remain friends? I know, I’ll do a friend with benefits.
- Should I spend this money or save this money? I know, I’ll save the money and spend on my credit card.
The problem with mutually exclusive situations is that, in practice, there is almost always a 3rd option. Like the examples above there was a 3rd option. However those options may not be the best choice. Sure, in the short-term they seem like a good compromise, but long-term they can come back to bite you in the butt, whether it’s herpes or just a higher credit card bill. The friends with benefits paradox is a term I’ve made up to describe the human nature to look for third option with faced with a difficult decision between two. The discovery of this third option makes us so excited that we often rush into that choice before deciding if it was any better than the first two.
The takeaway is that mutually exclusive events must be identified for what they are. You must weigh the pros and cons of each decision and decide which is best for you. If you try to arbitrage courtship norms you may end up with a clingy friend, and if you arbitrage your finances, well, you may end up in bankruptcy. If you do discover a third option that spares your from the mutually exclusive choices, make sure it’s actually a good option before you jump into it.
Photo: mark sebastian
 By The Weakonomist |
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The point you are making here is a deep one, Phil.
We need to make choices. But we are afraid to do so. So we cook up complicated ways to duck those choices.
Meanwhile, sand runs through the hourglass. Sooner or later, we are going to need to make those choices we put off. It’s going to be harder to make them later because we will be older and have fewer options available to us.
Success in life (both financial and non-financial) takes courage.
I am not saying that I always evidence courage. However, I like to think that there are times when I am aware of the nature of the problem that we all face.
Rob
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