Opinion: People can be at their most irrational when it comes to romance and that certainly applies to spending money on Valentine's Day
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by Emma Howard
Romance might be the first thing that comes to mind for some people when they think about Valentine's Day, but it's money for others. Many businesses see massive boosts in sales in the run up to February 14th and increased demand can also allow them to charge premium prices.
Valentine's Day fell on a Tuesday in 2023, and Irish spending was 86% higher in cinemas, 73% higher in bowling alleys and 58% higher in restaurants, compared to average spend other Tuesdays that month. Date night venues are not the only beneficiaries of the holiday; florists, beauticians, retailers, and hair salons also see increased revenue each year.
It is very much the social norm for people to splurge on Valentine's Day, with research suggesting that most Irish adults plan to spend at least €80 for the occasion. There can therefore be huge pressure on those in relationships, or in search of partners, to signal their commitment and feelings with grand romantic (expensive) gestures. As an economist, I must admit to thinking about rationality more often than romance, and for many reasons, romantic relationships can be irrational. Spending money on Valentine's Day, even more so.
Economics as a discipline focuses on the allocation of scarce resources; one of its principal theories is a prescriptive one of rational choice, outlining the principles of how we should make decisions. However, we don’t always make rational choices and because people tend to deviate from rationality in predictable ways, behavioural economists have developed descriptive theories of how people tend to make decisions in the real world. Rather than objectively considering both the monetary and opportunity costs of an action against the expected benefits, many of the decisions we make are subject to biases, and influenced by culture or social norms.
When it comes to romantic love, people can be at their most irrational. There are many biases that can influence the decision to remain in a relationship when the negatives outweigh the positives. People tend to be subject to status quo bias; a fear of change or a desire for things to stay the same. One reason for this bias is that people are generally loss averse; we feel the negative impact of a loss much more than we feel the positive impact of an equivalent gain.
The endowment effect provides another explanation as to why people might stay in a relationship when they shouldn't. We value things we already possess more highly than we would value them were they not ours. Therefore, if you are already in a relationship with someone, you will likely view them more favourably than if you were single and considering them as a potential partner. Breaking up is never easy; status quo bias, loss aversion, and the endowment effect don’t help.
Valentine's Day purchases demonstrate how framing effects and social norms influence behaviour, and can lead people to spend more money than they would if they were making rational choices. For example, data from AIB shows that Irish men accounted for 85% of spending on flowers for Valentine's Day, with an average spend of €45. Most of this spending was on their way home from work. This large, last minute spend is reflective of conforming to the norm, a habitual gift resulting from status quo bias, rather than a considered thoughtful purchase.
People often use mental shortcuts known as heuristics to make decisions. Anchoring is one of these shortcuts, whereby you use a reference point (the anchor) when you are thinking about how much you are willing to pay for something like a particular bouquet of flowers. The reference point might be what you spent last year, or what you know others are spending; either way, using an anchor to evaluate rather than objectively deciding how much the flowers are worth, will lead to overspending.
Framing effects can also increase how much we spend. If something is packaged as 'romantic' or 'special' for Valentine's Day, people will be willing to pay more. Restaurants and hotels exploit the way we think about money to get us to spend more on special occasions. How we think about spending impacts on how we feel about the expenditure, a process called mental accounting.
We feel better about spending money if we can integrate large losses with small gains. For example, a restaurant might be offering a four-course set menu for Valentine's Day that costs €60 a head, but if they advertise a free glass of Prosecco with it, this small gain makes people feel less bad about the large loss of spending so much money on a meal.
The irony is that most people probably realise Valentine's Day is the most expensive night to stay in a hotel or go out for dinner, and that it will be so busy you won’t get great service or any privacy. You’ll also get the worst value if you buy a traditional gift like flowers, but social norms dictate that as it’s a day of romance we must act accordingly. Reciprocity means that many of us may be reluctantly buying expensive gifts for partners who would also like to opt out of the whole event, but instead buy a gift in return to reciprocate.
As with buying a gift for any occasion, it really is the thought that counts, so don’t succumb to irrational spending. Although I'm not completely against the holiday, my husband and I don’t spend any money on Valentine's Day, but the cards my little boys make me in school and getting to be their Valentine is priceless.
Dr Emma Howard is an Economics Lecturer at the Faculty of Business, TU Dublin. She is a Research Ireland awardee and Chair of the Irish Society for Women in Economics.