Tuesday, September 6, 2011

Rational Economic Man Strikes Back


Back last year, I wrote of the consequences of the desacralization of marriage and the outcomes we should expect to see as Rational Economic Man increasingly shows up on the scene.


At the time, some of my predictions seemed a bit far-fetched to some, but the advance of history seems to be bearing out my thesis.

In essence, what happened in this case is a number of airline pilots and their wives saw the following circumstance:
1. The pension plan they were in was underfunded
2. Underfunded pension plans are not allowed to give accelerated or lump-sum distributions because doing so would capsize the plan early and create a prisoner's dilemma among the participants
3. There is an exception to this rule for the case of a divorce because of the logistical hardships and public sympathy.

So what did they do? They conjured Rational Economic Man and did something nearly unthinkable to most people, especially neurotypicals.

They divorced, got a skewed settlement, transferred the entire pension more or less to the wive, who rolled it into her IRA without creating a taxable event, and then they remarried. Sounds an awful lot like the scenarios in my previous post does it not?

Now they were very blatant about it, which is why there was a court case. In practice marriage and divorce are incredibly messy. My father and mother, for instance, were married, to each other, twice and divorced, from each other, also twice, before they both married other people. It would be terribly difficult to adjudicate whether a given divorce is a 'sham' or not when ordinary reality deals up such a dog's breakfast as a matter of course.

Of course every time this sort of thing actually occurs, it makes it more thinkable to others. At some point you may see ad hoc dissolution of civil marriages almost considered a due diligence issue in financial, tax, and estate planning. This of course will require the rules of society to change as those who game the system less are outraged.

I predict we've not seen the last of Rational Economic Man. His hour is come at last.

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