Marriage, Divorce and Asymmetric Information
Economists analyzed data from the National Survey of Families and Households (NSFH) in order to assess the role of asymmetric information on marriages and consequently on divorce rates given that each spouse has private information in regards to their outside options. In the survey, each spouse was asked the following questions:
1) Even though it may be very unlikely, think for a moment about how various areas of your life might be different if you separated. How do you think your overall happiness would change? [1, Much worse; 2, worse; 3, same; 4, better; 5, much better.]
2) How about your partner? How do you think his/her overall happiness might be different if you separated? [1, Much worse; 2, worse; 3, same; 4, better; 5, much better.]
Results of the survey showed that the majority of spouses were happy, with 77.0% of husbands and 77.4% of wives reporting that they would be worse or much worse off if they were separated. Additionally, 40.9% of couples reported the same level of happiness and about half of the couples guessed the same level of happiness for their partners that their partner reports. About a quarter of misperceptions were off by more than one level of happiness, with wives generally overestimating their husbands’ unhappiness and husbands underestimating their wives’ unhappiness.
Six years later, the NSFH did a second survey to collect statistics on the divorce rates of couples. Economists found that there was a direct correlation between misperceptions of happiness and the divorce rate. For couples where both spouses reported that they would be worse or much worse if they were separated, the divorce rate was 4.8%. For couples where a spouse guessed incorrectly and one underestimated how unhappy their partner would be, the divorce rate is 6.9%-8.1%. For couples where one spouse overestimated how unhappy the other spouse would be, the divorce rate is 9.0%-11.7%. If this misperception was off by more than one level of happiness, the divorce rate increases to 13.1%–14.5%.
This data was then used to create a household bargaining model in which spouses both maximize total surplus and bargain over the surplus. The relative strength of each spouse’s outside options determines how the surplus is split, which represents power in a network exchange.
Source: http://onlinelibrary.wiley.com.proxy.library.cornell.edu/doi/10.1111/iere.12086/pdf