When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants (30 page)

As a matter of religious observance, if a beggar importunes me directly, I must fork over some money. How do I know whether he’s been drinking or suffers from a neurological disorder anyway? Unless I’m his parole officer, what do I care? And before anyone virtuously offers him a hot dog, they should reflect on the possibility that the beggar is a vegetarian or only eats kosher or halal meat.

So if the beggar approaches me and puts out his hand, and if I only have a ten-dollar bill, I have to give it to him. It’s none of my business whether he plans to spend it on infant formula for his starving baby or a pint of Thunderbird.

This question is invalid and answers to it would not provide useful information. Let me explain:

When I recently had drinks and cheese with Stephen Dubner (I ate 100 percent of the cheese), he asked me why economics bothers me so much as a discipline, to the point of causing allergic reactions when I encounter some academic economists. Indeed, my allergy can be physical: recently, on a British Airways
flight between London and Zurich, I found myself seated across the aisle from an Ivy League international economist dressed in a blue blazer and reading the
Financial Times.
I asked to be moved and preferred a downgrade, just to breathe the unpolluted air of economy class. My destination was a retreat in the Swiss mountains, in a setting similar to that of Mann’s
Magic Mountain,
and I wanted nothing to offend my sensibility.

I told Stephen that my allergy to economists was on moral, ethical, religious, and aesthetics grounds. But here is another, central reason: what I call “ludicity,” or the “ludic fallacy” (from the Latin
ludes,
meaning “games”). It corresponds to the setup of situations in academic-style multiple-choice questions, made to resemble “games” with crisp, unambiguous rules. These rules are divorced from both their environment and their ecology. Yet decision making on Planet Earth does not usually involve exam-style multiple-choice questions isolated from their context—which is why school-smart kids don’t do as well as their streetwise cousins. And, if people often sometimes appear inconsistent, as shown in many “puzzles,” it is often because it is the exam itself that is wrong.
Dan Goldstein
calls this problem “ecological invalidity.”

So ecologically, in real life, we act in a different way depending on the context. As such, if I were to ecologize
this question, I would answer it as follows: should I be walking down the street in New York City, I would rarely be faced with a mission to disburse ten dollars—I would usually be thinking about my next book, or how to live in an economist-free society (or one free of analytical philosophers). And my reaction would depend on the sequence: beggar first or street vendor first.

Should I run into a beggar, I would try to resist giving him money (I give enough to anonymous people via charity), but I am certain that I may not succeed. I need to be actually facing a drunk beggar for that. My reaction also depends on whether I would have been exposed to images of starving children before the encounter—these would sensitize me. And do not underestimate personal chemistry. I may give him a lot more than ten dollars if he reminds me of my beloved great-uncle, or cross the street if he remotely looks like the economist Robert C. Merton. Of course, should you debrief me after the fact, I would never give “chemistry” as a reason for my choice, but rather some theoretical smart-sounding narrative.

Now, my airplane story has a twist. On the same British Airways route between Switzerland and London, I once sat next to another economist who was perhaps the first to uncover such ecological invalidity. His name was
Amartya Sen
, and he introduced himself as a philosopher, not as an economist. Furthermore, he looked physically similar to the first economist (though
he did not wear a blue blazer). I was proud to breathe the same air as Sen.

■ ■ ■

For the record, when Fryer and I had our conversation on this subject a few weeks ago, neither of us put as much effort into it as the folks above (with the exception, perhaps, of Cuban).

My position was that panhandling is almost universally inefficient and a nuisance to boot; and, as I prefer to reward good behavior rather than punish bad, I would give the hot-dog man some or all of my money. He’s the one, after all, who’s out there every day providing a service, having to pay taxes, licensing fees, etc. The panhandler, meanwhile, has far more efficient and effective options for getting food and shelter than getting a random few dollars from the likes of me, and the more I give, the more I ask him to spend his time on the street.

Roland, meanwhile, said he’d give his ten dollars to the panhandler: it was such a small amount, he said, that it would make more of a marginal impact on the panhandler than the hot-dog guy.

We use direct financial incentives to motivate so many different activities in life. No one expects workers in a
fast-food restaurant to flip burgers for free. No one expects teachers to show up and teach without getting paid. But when it comes to kids in school, we think that the distant financial rewards they will earn years or decades later should be enough to motivate them, even though for most kids a month or two feels like an eternity.

To learn a little more about whether kids’ school effort responds to financial incentives, I carried out a series of field experiments with John List, Susanne Neckermann, and Sally Sadoff. We recently
wrote up the results in a working paper
.

Unlike most previous studies involving kids, schools, and payments, in this research we aren’t trying to get kids to study hard or learn more. We were going after something even more simple: just get the student to try hard on the test itself. So we don’t tell the kids about the financial reward ahead of time—we just surprise them right before they sit down to take the test by offering them up to twenty dollars for improvements.

To see any gains from the financial incentives, the students need to know that they will be paid right away. If instead we tell them we will pay them one month later, they don’t do any better than with no incentives at all. This is bad news for those who argue that payoffs that come years or decades in the future are sufficient to motivate students.

The very best results come when we give the students the money before the test, and then we take the money back if
they don’t meet the standards. This result is consistent with what psychologists call “loss aversion.”

With young kids, it is a lot cheaper to bribe them with trinkets like trophies and whoopee cushions, but cash is the only thing that works for the older students.

It is remarkable how offended people get when you pay students for doing well—so many negative e-mails and comments. Roland Fryer endured the same onslaught as he has experimented with financial incentives in cities around the U.S.

Perhaps the critics are right and the reason I’m so messed up is that my parents paid me twenty-five dollars for every A that I got in junior high and high school. One thing is certain: since my only sources of income were those grade-related bribes and the money I could win off my friends playing poker, I tried a lot harder in high school than I would have without the cash incentives. Many middle-class families pay kids for grades, so why is it so controversial for other people to pay them?

A group of us went out for dinner the other night at a reasonably fancy restaurant. As we looked over the menu, the
waitress was kind enough to let us know that the salmon was particularly delicious. We might also want to try the artichoke dip, she told us. It was her personal favorite.

Alas, our preferences were not easily swayed. None of us ordered the salmon, and there was little interest in the artichoke dip. As the waitress collected the menus, she inquired once again as to whether we might not want to give the artichoke dip a chance. Half joking, one of us asked her if there was a particular reason why she wanted us to try it.

No doubt sensing that she was talking to a bunch of nerdy economists who would appreciate the truth, she answered honestly: the chef had created a new dessert (and she loves dessert). Whichever member of the waitstaff sold the greatest number of artichoke dips and salmon entrées that night would collect a healthy portion of the new dessert for free. We duly rewarded the restaurant’s creative approach to incentives by adding an artichoke dip to our order.

Later in the meal, I asked her whether the restaurant incentivized the waitstaff to sell particular products frequently. She mentioned that on an earlier occasion, they had offered a $100 prize to the person who sold the most orders of a certain dish.

“Wow,” I said. “That hundred dollars must have really lit a fire under you.”

“Actually,” she replied, “I’m more excited about the dessert.”

Chalk up another victory for non-pecuniary incentives.

I recently posed a simple question on the blog: “
Why are we eating so much shrimp
?” (Between 1980 and 2005, the amount of shrimp consumed per person in the U.S. has nearly tripled.) I didn’t expect more than one thousand responses!

I asked the question because Shane Frederick, a marketing professor at MIT’s Sloan School, had contacted me with an intriguing hypothesis. He wrote about a striking regularity in the responses he got when he asked different people why we are eating so much shrimp:

Psychologists (indeed, probably all non-economists) give explanations that focus on changes in the position of the demand curve—changes in preferences or information, etc., like:

        
1
. People are becoming more health-conscious and shrimp is healthier than red meat;

        
2
. Red Lobster switched ad agencies, and their ads are now working;

And so on. Economists, by contrast, tend to give explanations that focus on “supply,” like:

        
1
. People have designed better nets for catching shrimp;

        
2
. Weather
conditions in the Gulf have been favorable for shrimp eggs;
And so on.

I found Shane’s hypothesis compelling. When I teach intermediate microeconomics, the students seem to understand demand a lot more easily than supply. Most of us have a lot more experience being consumers than producers, so we tend to view things through the lens of demand rather than supply. We need to have an appreciation of supply factors trained into us by economists.

My colleagues generated some confirmatory evidence regarding Shane’s hypothesis. All eight of the University of Chicago economists to whom I posed the shrimp question thought the answer had something to do with producing shrimp more efficiently—i.e., supply-based explanations.

Which led me to open up the question to blog readers to see what their responses would look like. With the help of Pam Freed (a Harvard undergrad who plans to be an economics major and first gave a “demand” explanation, but quickly switched to a “supply” story in response to my withering stare), we cataloged the first five hundred blog comments we received.

Well, Shane, I am sorry to report that your hypothesis only did so-so in the data.

There were 393 usable observations (107 of you didn’t follow the directions).

First, the good news for the hypothesis. As Shane conjectured, non-economists (i.e., anyone who didn’t major in economics) mostly thought that we are eating more shrimp because of demand-based reasons (e.g. the movie
Forrest Gump,
a rise in the number of vegetarians who will eat shrimp, etc.). Fifty-seven percent of non-econ majors gave only demand stories, versus 24 percent who gave only supply stories. The rest had a mix of supply and demand explanations.

Where the theory didn’t do so well, however, is that the 20 percent of the respondents who were economics majors didn’t look all that different from everyone else. Roughly 47 percent of the econ majors exclusively gave demand stories, and 27 percent only supply. (Economics majors were more likely to give both supply and demand stories.)

In fairness to Shane, there is a big difference between being an economics professor and having an undergraduate major in economics. Indeed, the similarity between economics majors and everyone else is, perhaps, an indication that our current curriculum for teaching economics doesn’t do a great job of instilling students with good economic intuition—or at least whatever economic intuition my colleagues have.

Who thinks least like the academic economists? That prize goes (no surprise) to English majors and (more of a surprise) engineering majors, who together combined to give forty-nine responses that overwhelmingly touted demand explanations.

Interestingly, women in general were only half as likely to give supply explanations as were men. I will leave you to ponder the causes and implications of that result.

So why did shrimp consumption rise so much?

I’m not exactly sure, but one key factor is that prices have dropped sharply. According to
one academic article
, the real price of shrimp fell by about 50 percent between 1980 and 2002. When quantity rises and prices are falling, that has to mean that producers have figured out cheaper and better ways to produce shrimp. An
article in
Slate
argues there has been a revolution in
shrimp farming
. Demand factors may also be at work, but they don’t seem to be at the heart of the story.

So for the diligent few who have actually read all the way to the end of this post, here is another question: In stark contrast to shrimp consumption, the amount of canned tuna eaten has been steadily falling; is that due to changes in supply or demand?

I saw Justin Wolfers a few weeks back, and I joked with him that it had been months since I’d seen his research in the headlines. It didn’t take him long to fix that—he and Betsey Stevenson, his partner in life and economics, made the news twice last week. The first was in the form of a
Times
op-ed
pointing out that the media has totally misinterpreted newly released statistics on divorce. While the reports trumpeted the new data as evidence that Americans today are more likely than ever to get divorced, Stevenson and Wolfers show that this pattern is purely an artifact of a change in how the data are collected. In fact, fewer people today are getting married, but the ones who do are more likely to stay together.