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Ask Emily: How do I determine how much money my friends are worth?

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Making friendship work, against the odds.
  • Emily Oster
By Emily Oster

Associate Professor of Economics, Brown University

This article is more than 2 years old.

1) I’ve lived 3,000 miles away from my childhood home for many years. I have a great group of friends in the city where I live now, but as we all get older it seems increasingly hard to keep in touch. Meanwhile, my friends from home and I end up seeing each other very infrequently.

All of these people mean a lot to me and I feel guilty when I lose contact with anyone for long stretches. But the costs of maintaining the friendships, both emotionally and financially, are becoming a little daunting. When it comes to investing in these friendships, is there a formula I can use to prioritize? Does it make more sense to try and use Facebook/social media (cheap but not necessarily long-lasting)? Or should I just go for it, and make the commitment to physically visit more people more often?

As someone who is a terrible correspondent and lives far away from most of my good friends, I can really sympathize with this. I will start by giving you one piece of non-economics advice, which is that group calls over video Skype are a surprisingly good way to catch up with people.

But in terms of a framework or formula, Facebook and social media are cheap. Let’s assume you’re happy enough to keep up with some people that way, but not everyone. The question is whether you should spend more time and money visiting your far-flung pals, or otherwise finding a way to be more present.

To figure this out, you have to weigh the marginal benefit against the marginal cost. Given your current level of contact with your friends, how much happier would you be if you visited them one more time this year, or had one more dinner together this month? That is your marginal benefit.

The marginal cost of this dinner or visit is the money and time you spend. So you want to think about what else you would do with that money or time.

If you use this system, you’ll probably find that you would prefer to let some friendships be relegated to Facebook. People tend to encounter what we call “diminishing marginal utility” when it comes to most things. The added happiness you get from a second slice of chocolate cake, for example, is less than the rush of joy you may feel upon digging into the first dose of dessert.

Sadly, this principle is likely to apply to friendships. You will probably find that some people are marginal friends, and the added benefit of another cross-country ticket or fancy night out isn’t worth the cost. If that happens, at least you will know that losing touch is rational–and that you can keep abreast of their trivia-team victories and cinephile opinions on social media.

2) My fiancé and I are stuck on the price of our wedding. We are in the enviable position of being able to tap into a nest egg I inherited from my father, and we already own an apartment and don’t have plans for children, so we could spend up to $100,000 without feeling any strain. That being said, spending $100,000 one day seems… stupid.

On the other hand, after putting together what seems like a perfectly reasonable list of expenses for a New York City wedding for 150 people (simple venue, open bar, food truck, flowers, chair and table rentals, our friends doing the music for free), we’re already up to $75,000, which is the average here. And that doesn’t include a rehearsal dinner.

The NYC location is non-negotiable—we want his Latino family to be able to fly straight into the city we’ve called home for a decade, since they don’t speak English. Or maybe it is negotiable—destination wedding? What’s a decision-making framework to maximize our marital bliss?

First off, congratulations! Marriage is wonderful, and in my view decidedly less stressful than wedding planning.

It sounds like your main question is how much money is reasonable to spend on a wedding. I agree that $100,000 seems like a lot. However, “seems like a lot” is not actually a decision-making framework. The concept you are looking for is “opportunity cost.”

To be more specific, this $100,000 you might spend on your wedding has a cost. You’ll be giving up whatever else you might have spent the money on, and the happiness that might have come with it. If the next-best use of the money might bring you more happiness than a one-day wedding, you should scale down the festivities. If not, you should go ahead with your current plan free of guilt.

If you were planning to have children, I’d say the next-best use of the money might be to set it aside for college tuition. And if you didn’t have an apartment already, I’d say the next-best use would be put the money toward a down payment. It sounds like neither of these apply. But I still suspect you can come up with some other items to spend a good chunk of the money on–a beach house in Maine, say, or a trip through Asia.

I suggest you ask yourself the following question: “If someone gave me $100,000, what would I do with it?” If the answer is that you would save it so you can die with more money, I suggest proceeding with the wedding as-is. Money gives the dead little happiness, or so I would assume. If the answer is that you would take a once-in-a-lifetime trip, however, I suggest you figure out a way to trim the guest list or look into cheaper venues out of town.

Emily Oster is an associate professor of economics at Brown University and the author of “Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong — and What You Really Need to Know.

Got an everyday problem that could use an economist’s point of view? Send Emily your questions at askemily@qz.com.

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