Marital Bliss? Don’t Fight Like Raj Rajaratnam; Think Like Adam Smith

March 7, 2011 James Heinsman Hedge Fund News


The best advice for a good marriage is to think, act and fight like an economist.  “Spousonomics,” co-authored by Jenny Anderson and Paula Szuchman (recently published by Random House) developed a theory on how marital bliss can be gained by behaving like an economist, “apply the rational laws of Adam Smith, as well as recent findings about why we do some of the weird things we do – mining the field of behavioral economics – to increase marital happiness.”  A review in The New York Times, discussed the chapter on incentives (how to motivate a spouse to carry out a task).  The authors found nagging not to be nearly as effective as gently making the request in a trusting tone and praise. 


Perhaps Raj Rajaratnam – co-founder of the Galleon Group hedge fund – should have read the book.  His incentives seem somewhat off.  When asked what he thought made him so successful, he replied, “It is pride, and I want to win…I want to win every time. Taking calculated risks gets my adrenalin pumping.”


Ignore Rajaratnam; Focus on Smith
 

When you’re in the middle of a fight, you have to change your focus.  If you keep pumping energy into a fight you’ve already lost, you’re just going to continue losing.  According to Anderson and Szuchman, a good economist wouldn’t get into this mess.  The example they give is “loss aversion.”  What this means is that when we lose $50 we need to win $100 to “make up for the pain” of the loss.  But this pain ends up making us behave irrationally and we start to bet more money when we’re already losing it. 


“Winning” a fight doesn’t mean one side wins, in a marriage or in business.  “Winning” means both sides feel good at the end of the day.  If Raj Rajaratnam would have thought like a true economist then he might not be facing up to 20 years in prison following a dramatic trial that expects to “shine a spotlight on the hedge fund industry which over the past decade has emerged as one of the most powerful forces on Wall Street.”
 

Adam Smith, business, economics, Galleon Group Hedge Fund, Raj Rajaratnam,

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