Dubner and Levitt write about Paul F.'s business: selling bagels without using a cash register:
The New York Times > Magazine > What the Bagel Man Saw: In the real world, Paul F. learned to settle for less than 95 percent. Now he considers companies ''honest'' if the payment is 90 percent or more. ''Averages between 80 percent and 90 percent are annoying but tolerable,'' he says. ''Below 80 percent, we really have to grit our teeth to continue.''... He expends a great deal of energy hectoring his low-paying customers, often in the form of a typewritten note. ''The cost of bagels has gone up dramatically since the beginning of the year,'' reads one. ''Unfortunately, the number of bagels and doughnuts that disappear without being paid for has also gone up. Don't let that continue. I don't imagine that you would teach your children to cheat, so why do it yourselves?''
Dressed in jeans and sneakers, with busy eyes and a wavy fringe of gray hair, he awoke this Friday at 3 a.m. Working out of his garage, he first loaded 50 cardboard trays of doughnuts -- a local bakery delivered them overnight -- into the back of his van. He drives an unmarked white Ford E-150 rigged with a bagel-warming compartment.... After the doughnuts, Paul F. loaded two dozen money boxes, which he made himself out of plywood. A money slot is cut into the top. When he started out, he left behind an open basket for the cash, but too often the money vanished. Then he tried a coffee can with a slot in its plastic lid, which also proved too tempting. The wooden box has worked well. Each year he drops off about 7,000 boxes and loses, on average, just one to theft. This is an intriguing statistic: the same people who routinely steal more than 10 percent of his bagels almost never stoop to stealing his money box -- a tribute to the nuanced social calculus of theft. From Paul F.'s perspective, an office worker who eats a bagel without paying is committing a crime; the office worker apparently doesn't think so. This distinction probably has less to do with the admittedly small amount of money involved than with the context of the ''crime.'' (The same office worker who fails to pay for his bagel might also help himself to a long slurp of soda while he's filling a glass in a self-serve restaurant, but it is extremely unlikely that he will leave the restaurant without paying.)... After retrieving his hearing aids, he heads for the bagel shop that provides him with roughly 50 dozen bagels, in six flavors, every day. He drives nearly 80 m.p.h. along empty highways and discusses what he has learned about honesty. He is leery of disparaging individual companies or even most industries, for fear it will hurt his business. But he will say that telecom companies have robbed him blind, and another bagel-delivery man found that law firms aren't worth the trouble. He also says he believes that employees further up the corporate ladder cheat more than those down below. He reached this conclusion in part after delivering for years to one company spread out over three floors -- an executive floor on top and two lower floors with sales, service and administrative employees. Maybe, he says, the executives stole bagels out of a sense of entitlement. (Or maybe cheating is how they got to be executives.) His biggest surprise? ''I had idly assumed that in places where security clearance was required for an individual to have a job, the employees would be more honest than elsewhere. That hasn't turned out to be true.''...
He has identified two great overriding predictors of a company's honesty: morale and size. Paul F. has noted a strong correlation between high payment rates and an office where people seem to like their boss and their work. (This is one of his intuitive conclusions.) He also gleans a higher payment rate from smaller offices. (This one is firmly supported by the data.) An office with a few dozen employees generally outpays by 3 percent to 5 percent an office with a few hundred employees.... The bagel data also show a correlation between payment rate and the local rate of unemployment. Intuition might have argued that these two factors would be negatively correlated -- that is, when unemployment is low (and the economy is good), people would tend to be freer with their cash. ''But I found that as the unemployment rate goes down, dishonesty goes up,'' Paul F. says.... [I]t is the micro trends -- those reflecting personal mood -- that are perhaps most compelling. Weather, for instance, has a major effect on the payment rate. Unseasonably pleasant weather inspires people to pay a significantly higher rate. Unseasonably cold weather, meanwhile, makes people cheat prolifically; so does heavy rain and wind. But worst are the holidays. The week of Christmas produces a 2 percent drop in payment rates -- again, a 15 percent increase in theft, an effect on the same order, in reverse, as 9/11. Thanksgiving is nearly as bad; the week of Valentine's Day is also lousy, as is the week straddling April 15. There are, however, a few good holidays: July 4, Labor Day and Columbus Day. The difference in the two sets of holidays? The low-cheating holidays represent little more than an extra day off from work. The high-cheating holidays are freighted with miscellaneous anxieties and the high expectations of loved ones....
By 9 a.m., he has made all his deliveries. At 11, he will start picking up leftovers and the money boxes. Until then, it is time for his weekly Friday morning breakfast with a dozen of his old economist friends.... These are some of the same friends who 20 years ago told Paul F. that his bagel business would never work. People cannot be trusted, they said. Their conversation this morning continues along those lines. One man cites a story he heard about a toll-collector strike in England. During the strike, drivers were asked simply to put their money into a box. As it turned out, the government collected more toll money during the strike -- which suggests that the drivers were at least fairly honest, but also that the toll collectors had been skimming like mad. Another economist at the table is now a tax preparer. He ticks off a long list of common tax evasions his clients try to use -- lying about the cost basis of stocks is perhaps the favorite -- and reminds the others that the United States tax code is, like Paul F.'s bagel business, largely built on an honor system....
Adam Smith wrote a book about this, the Theory of Moral Sentiments, to try to answer this question: given that our impulses to benevolence are so weak, we are we honest and fair so much of the time--even when people are not looking?
Posted by DeLong at June 7, 2004 09:45 AM | TrackBack | | Other weblogs commenting on this postI am honest because it is the easiest path, it is the path of work-avoidance. If I am honest, I don't have to keep track of my lies or thefts. I am also buying a clean conscience, the price of which is the difference between what I honestly paid and what I could have gotten away with stealing.
Posted by: MichaelA on June 7, 2004 10:38 AMRobert Axelrod's studies, "The Evolution of Cooperation" and "The Complexity of Cooperation", show how square dealing is actually a winning strategy provided you expect to have subsequent interactions. In brief, what goes around comes around if you have a circle. In many ways they are a fundamentally optimistic look at human interaction via computerized simulations. I think they are well worth reading.
I was fascinated to see the comment that cheating increased steadily since around 1992. Apparently some of bagel man's right wing friends blame Clinton, but actually the trend matches up amazingly with a book I read recently about trends in public opinion.
"Fire and Ice: The United States, Canada, and the Myth of Converging Values" covers public opinion research in the US from 1992 to 2000. In the US there is a massive shift in peoples' self-reported opinions and values during this period. Basically it's toward a sort of nihilistic, xenophobic, resentful, "it's a dog eat dog world" new right. Neither the left nor the hardcore religious right saw much change in numbers during the period. But among middle of the road people, there was a huge shift from fairly community-oriented values to "screw everyone else" style individualism. This included an overall increase in things like sexism, racism, xenophobia, and acceptance of violence.
This is the first time I've seen concrete evidence in bagel form that this change in social attitudes corresponds to changes in everyday behavior.
"...even when people are not looking?"
That's not going to be possible soon any way, with the present progress of IT.
At any rate, dishonesty committed "when people are not looking" is the least harmful.
What really hurts a society is the kind of dishonesty committed in compliance with the books, with every body looking, even perhaps admiring -- remember the journalists who work for their "sources", for example?
And those journalists are probably saints next to those "sources".
I'd say expect to find the worst kind of dishonesty where you hear people murmuring about "whistleblowers" and "loose cannons".
It is very easy to be honest enough not to steal, not even small things; most people manage that perfectly well.
It is not so easy to be honest enough not to mind being called a whistleblower or loose cannon; it is not even so easy to stand by others who don't mind being called that.
But with enough theft he discontinues supplying bagels...so if the inhabitants do not propriate the bagel god- presto no more free bagels!
TANSTAAFL-
but we sure keep looking, don't we?
Welcome to the world of repeated games (as in game theory), where anything can happen and nothing can be explained. I think that this is a remarkably interesting area of research, and the paper mentioned here is worth reading. This is how economists, IMO, will begin to talk about social things again, through careful and well-thought-out research.
Posted by: Chris on June 7, 2004 12:20 PMI'm always pleased when you cite _TMS_, Brad, because it reminds me that you're one of the economists who has most definitely read it alongside _The Wealth of Nations_ -- something that I consider absolutely vital in order to understand the latter.
I think that Smith more or less got it right: that someone is always looking, and that someone is oneself. And that's not a matter of conscience or 'morality' so much as the necessary duality of consciousness in social actions.
http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/smith/moral.3
(Though I think that Swift via Mandeville and Shaftesbury shouldn't be overlooked here, either.)
Posted by: nick on June 7, 2004 01:27 PMI don't know of any other countries where they can sell bagels the way this feller in the story does.
Posted by: Bulent Sayin on June 7, 2004 02:27 PMWhy assume that our impulses to benevolence are weak? Not to sound like too much of a Boy Scout, but I do nice things because it feels good, not our of any expected benefit or fear of punishment.
Posted by: Mike on June 7, 2004 02:38 PMUnfortunately, Mike, you are in minority. People usually are motivated by expected rewards and/or fear of punishment. Like other mammals. Hence need for education and upbringing; so that most people would be citizens (a) competent; (b) honest; (c) well mannered. The larger the number of people with those three attributes in society, the less need for benevolence and at the same time the larger the supply of it too.
Those three attributes are in fact as good as tangible economic assets; I believe they have a positive impact both on cost of doing business and inflation, as well as productivity.
Selling bagels without cash registers, for example, is I think a capability, a social capability, obviously, which is not available to many countries. Usually, in many countries, one would need to have a person attending each bagel box and collect cash until bagels are sold. Here, one man handles how many bagel boxes? Fifty? Producivity difference is obvious. And it doesn't have any thing to do with technology all; it has to do with pure, simple honesty of ordinary folks.
So, perhaps whatever caused the emergence of the yuppies did not do total or irreversible damage to American society (a bit of tounge in cheek mood here in reference to yuppies).
Posted by: Bulent Sayin on June 7, 2004 03:33 PMFunny, I (an ex-UKer in the US), was asking a US-born person about her 1-2 years in the UK, and she said the persistent nicking of stuff left around was the most aggravating.
There is a very high level of honesty in the US, e.g. the boxes in which newspapers are sold; the sellers trust a buyer only takes one.
Posted by: Tom on June 7, 2004 04:12 PMWell, Tom, there are honesty boxes in WH Smith at most 'commuter stops', and even in less high-volume shops, and that seems to work pretty well. But the 'sandwich man' tends to accompany the sandwich tray in most offices, rather than leaving bagels behind.
I wonder if anyone's graphed 'honesty' against price point, though? Are people more likely to pilfer if they're expected to stick ten dollars in the box than a single?
Posted by: nick on June 7, 2004 06:12 PMSize matters. The bigger the office/community/store, the more exploited one feels. Crowded. Disassociated. As communities grow and become more crowded and prosperous, the old-timers complain about the pushiness and dishonesty of the newcomers.
Like MichaelA, I'm honest (often to persnicketiness) because it causes me less trouble and makes me feel good. But there's something else: since I moved into a rural area whose county seat is famous for the hard work of its citizens and the amount of volunteer time people put in, I've realized that if I toe the line, the place is more likely to remain a good place to live than if I take advantage of others' honesty, willingness to help, and hard work. A simple equation.
Posted by: Bean on June 7, 2004 07:06 PMBulent says:
"Selling bagels without cash registers, for example, is I think a capability, a social capability, obviously, which is not available to many countries. Usually, in many countries, one would need to have a person attending each bagel box and collect cash until bagels are sold."
Do you have any actual EVIDENCE for this assertion? I actually find it extremely dubious - I expect this strategy would work in a very wide range of countries. The US is a fairly individualistic and atomistic culture compared to many, and I would actually expect less individualistic and more communal cultures to have an easier time with bagel-box type stuff. I have been told by people who have spent a lot of time in various parts of the Middle East, for example, that there is much less chance of your stuff being nicked in public when you're not looking. Iran was particularly cited as a place where you could leave your luggage sitting in public or forget your wallet somewhere, and have virtually no chance of losing it. (This is probably an exaggeration, but I was told that you could drop cash in the street in Iran and it would probably still be there if you came back hours later).
I also read - can't remember where - about a method of paying bus fare in some third world country. People didn't have exact change, but the driver didn't give them all change individually. Instead they got on the bus and handed a large bill to the person in front of them to be passed to the front. Eventually this would build into a wad of cash being handed up to the front of the bus. Then the change would filter back and everybody would take the appropriate amount. According to the western observer, if someone had taken too much there might conceivably have been a ruckus but it would have been impossible to identify the actual culprit. Apparently people behaved as if the chances of anybody skimming some were zero, which they probably were.
Posted by: Ian Montgomerie on June 7, 2004 07:47 PMThis is a fantastic little example that often informal social sanctions can exert signficantly stronger deterrence effects than formal sanction mechanisms, but that the social structures that exert informal sanctions often collectively fall apart (as evidenced by the pay rates on holidays or by unhappy, and likely weakly bonded, employees). The power of informal sanctions is truly incredible!
Posted by: Chris D on June 7, 2004 07:52 PMI'm reminded of one example of an honour system at work: on Galiano Island, BC (pop. circa 1,000) there's at least one family that keeps chickens, and has an unattended stall by the road with the day's eggs, a stack of egg trays and a little box for payment. Works just fine. People even return their trays. There'd be no way of knowing that you were an egg-stealer, but because the island is a tight community, there are established social sanctions that extend to actions out of the public gaze. (Please don't spoil things by travelling to Galiano and stealing eggs!)
And I've seen similar systems of trust at work in various countries, especially in South Asia. Truly, this isn't the place to assert American exceptionalism.
Posted by: nick on June 7, 2004 11:01 PM"...Do you have any actual EVIDENCE for this assertion? ..."
No, I don't.
---------------
"...Truly, this isn't the place to assert American exceptionalism..."
Perhaps not. Sorry.
Posted by: Bulent Sayin on June 7, 2004 11:47 PMTo Ian Montgomerie, the method of payment on a bus that you describe is practiced here in Egypt, particularly on mini-buses. Also, often the passengers collect their own money and pass change back and forth and do quite complicated things to make it come out right and then pass it up to the driver who does not count it but just sticks it under the dash. Another thing I notice is that you get on a big government run bus and give the guy a bill he has no change for and then as you're getting off you ask him for the change and he never assumes you might not be the same person or you might have lied about the amount.
Posted by: Anna in Cairo on June 8, 2004 03:14 AMEver been the one at a lunch gathering to put the bill on your credit card while the others ante up in cash for their portion of the bill? How often do you come out ahead or behind?
Posted by: Trustworthy on June 8, 2004 07:27 AMThe Theory of Moral Sentiments is a fascinating book, and much more deserves to be written about it.
On the general principle of why most people are honest and fair even without others looking, I think there are three reasons, all emotional, which individuals may differently weight:
(1) Expectation. People will tend to act fairly and altruistically in situations where they expect others will do the same (even when no one's looking). For most people, this feels better. You could cook up the game-theoretic version, or theorize economistically that love and comity have less transactions costs than hate and fear. But really, most people just want to be with other smiling people.
(2) Hope. Most people hope for a better world, and think you get there by acting upon principles which might lead to small demonstrations of the possibility. Occasionally a larger opportunity presents itself, like writing the U. S. Constitution.
(3) Faith. Most people (70-80% in this country) believe in God, or union with higher being. A notable prerequisite in all the manuals is some form of dissolution of ego-self.
Sometimes I think the unwritten premise of Wealth of Nations was to answer a mechanical question: if belief in God rewards the whole nation (an Old Testament favorite!) then why is England doing so well, when motivated by selfish behavior? Interestingly, the Wealth of Nations never actually condones such behavior. Meanwhile, current notion that selfishness is most efficient is just ridiculous.
Posted by: Lee A. on June 8, 2004 08:16 AM"3) Faith. Most people (70-80% in this country) believe in God, or union with higher being. A notable prerequisite in all the manuals is some form of dissolution of ego-self."
Actually, psych experiments have proven pretty conclusively that degree of religious belief has nothing to do with unobserved cheating.
I agree with Ian that religious belief does not correlate or have a causal effect on honesty. I also think Lee's assertion that selfishness is not efficient is absolutely self-evident. I would like to read this Adam Smith book now to see what he thought exactly, but it seems to me that generalizing the concept a la Kant would be enough of a mind experiment to see that clearly if we were all acting totally selfishly and causing each other to lose through cheating and stealing life would be really Hume-ian. There. That's all I can remember from the few philosophy courses I took.
Posted by: Anna in Cairo on June 9, 2004 01:19 AMI work in the security business. Our rule of thumb is that 40% of the people are honest, 30% of the people won't steal if they'll be caught, and 30% won't steal if they will be punished.
There is some variance on what is considered theft.
Si post fata venit gloria non propero - If glory comes after death, I'm not in a hurry (if one must die to be recognised, I can wait)
Meum pactum dictum - My word is my bond
Unitam logica falsa tuam philosophiam totam suffodiant - May faulty logic undermine your entire philosophy