Freakonomics Quorum: The Economics of Street Charity

Not long ago I was having dinner with Roland Fryer and our significant others. For some reason, talk turned to street charity. The conversation was so interesting that I thought we’d pose a street charity question to a few other folks. Their answers are presented below (and, FWIW, at the very end you can see what Roland and I thought).

This format has become known as the Freakonomics Quorum. (The first one we did was about strategies to save the African rhino.) This time the participants are: Arthur Brooks, who teaches business and government at Syracuse and is the recent author of Who Really Cares: The Surprising Truth About Compassionate Conservatism; Tyler Cowen, best known in these parts as a prolific blogger and author; Mark Cuban, the Internet entrepreneur and Dallas Mavericks owner (who has answered other questions on this site); the writer Barbara Ehrenreich, author of the low-rent classic Nickel and Dimed and many other works; and Nassim Nicholas Taleb, the Black Swan and Fooled by Randomness author who has also been featured on this site.

Here is the question we put to them:

You are walking down the street in New York City with $10 of disposable income in your pocket. You come to a corner with a hot dog vendor on one side and a beggar on the other. The beggar looks like he’s been drinking; the hot dog vendor looks like an upstanding citizen. How, if at all, do you distribute the $10 in your pocket, and why?

Arthur Brooks:

We face this situation all the time — both literally and figuratively. If you live in a city, you are frequently confronted by needy winos. Do you give to them, or not? In your heart, you fear that they will just ruin their lives further with your pocket change. But it feels hard-hearted not to give.

This dilemma goes beyond just how we treat the homeless. In our public policies, we see parts of the population which, we fear, might become dependent on the government “dole” if we provide that kind of help to people in need. Some even argue that whole nations can lose their self-sufficiency through foreign aid. This is why we have metaphors about giving fish versus teaching people to fish, and so forth.

Furthermore, some people worry a lot about the dignity of folks in need. For some, that means we should give them whatever they ask for. For others, it means charity is degrading and no good, and should be replaced totally by government programs. As the Inuits say, “Gifts make slaves, as whips make dogs.”

So how does all this help me figure out what to do as I approach the tipsy beggar and the upstanding hot dog vendor? I have to figure out whether I care about a) the desires and sovereignty of the beggar; and b) the impact and effectiveness of my gift to do good in the world. There are four possibilities, with four different associated actions:

1. I care about the beggar’s sovereignty, but not the impact of my gift. I give him some cash, which he will probably spend on booze. But hey, we all have free will, right? I didn’t force him to buy booze instead of food.

2. I care about the impact of my gift but not the beggar’s sovereignty. I buy him a hot dog — or better yet, I donate the money to a cause to help the homeless.

3. I care about both the beggar’s sovereignty and the impact of my gift. This is the toughest case, and usually involves the futile exercise of trying to convince the beggar to “get some help.” Imagine trying to have an intervention on the street.

4. I don’t care about either the beggar’s sovereignty or the impact of a gift. This is the easiest case of all. I buy myself a hot dog and ignore the wino. Put some kraut on that and give me a Diet Pepsi, too.

Which is my choice? I usually take number two, unless I’m feeling really lazy or I’m with somebody who knows I write books about charity — in which case I sometimes choose number one.

Tyler Cowen:

I’m not keen on giving the money to the beggar. In the long run, this only encourages more begging. If you imagine a beggar earning, say, $5,000 a year, over time would-be beggars would invest about $5,000 worth of time and energy into being beggars. The net gain is small, if indeed there is one. It is rumored that in Calcutta people cut off body parts to be more effective beggars; that is a polar example of this phenomenon. I explain this logic in more detail in my new book, Discover Your Inner Economist.

Oddly, the case for giving to the beggar may be stronger if he is an alcoholic. Alcoholism increases the chance that he is asking for the money randomly, rather than pursuing some well-calculated strategy of wastefully investing resources into begging. But in that case, I expect the gift will be squandered on booze, so I still don’t want to give him the money.

If I liked hot dogs, I would buy a hot dog from the vendor rather than giving him the money for free. At the end of the day, he’ll probably throw out food. He’s going to get the money in any case, so why waste a hot dog?

A third option, only implied in the question, is to simply rip up the money. This will make the currency of others worth proportionately more and spread the gains very broadly. Since many dollar bills are held by poor foreigners (most of all in Latin America), the gains would go to those who are able to save in terms of dollars. This would include many hard-working poor people, a group I regard as worthy recipients.

I have two worries about this option, however. First, drug dealers and other criminals hold lots of cash — why should I help them out? Second, the Federal Reserve might (if only in the probabilistic sense) reverse the effect of my actions by printing more currency.

The bottom line: Buy a hot dog.

The second bottom line: Don’t exercise your charity in New York City.

Mark Cuban:

I keep the money in my pocket and keep walking because I have no reason to just hand over money on a street corner.

Barbara Ehrenreich:

Could we first dispense with the smarmy connect-the-dots answer this question seems to cry out for? That is, that I’d use the $10 to buy a hot dog for the beggar and perhaps give the change to the vendor as a tip, thus rewarding a hardworking citizen while assuring that the shiftless beggar does not get the wherewithal for another drink — while of course giving me a nice little hit of middle class self-righteousness.

Although I’m atheist, I defer to Jesus on beggar-related matters. He said, if a man asks for your coat, give him your cloak too. (Actually, he said if a man “sue thee at the law” for the coat, but most beggars skip the legal process.) Jesus did not say: First, administer a breathalyzer test to the supplicant, or, first, sit him down for a pep talk on “focus” and “goal-setting.” He said: Give him the damn coat.

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 Hallal meat.

So if the beggar approaches me and puts out his hand, and if I only have a $10 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.

Nassim Nicholas Taleb:

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% 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 place 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 [Thomas] 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 set-up 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 street-wise 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.”

Consider the following experiment: Researchers (Hsee et al.) presented people with two sets of stereos: Set A, which were good looking, but with a clearly inferior sound; and Set B, which were less attractive, but with a better sound. While the people in the experiment preferred B over A when seen sequentially, they preferred A over B when seen jointly. Why? When seeing the pieces separately, they based their comparison on looks; when together, the criterion switched to sound. And that is for a stereo set that has only two major dimensions to chose from: sound and looks. Compare it to encountering humans with many possible dimensions ranging from dress, facial features, and vowel pronunciation to smell.

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 $10 — 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 $10 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.

Note that the same criticism about non-ecological reductionism applies to fields called “analytical,” or “nerdified” philosophy, also known as “anal” philosophy.

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 look 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, license 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 $10 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.

Fan Zhou

As a college undergraduate shelling out more than 50,000 dollars a year to go to school it would be unwise of me to give up money that could be much better invested into my education. I know that may sound selfish and in the long run I do want to give back but I feel that there may be a better avenue and better time for me to be philanthropic (let's say when I have a job). At the present, I'd take the hot dog so that I don't fall asleep studying into the night for exams.


Who said the vendor wanted your money? Why would he take your charity?


Why not make the best of both worlds and buy the hot dog and give it to the homeless guy? I live in Chicago and see homeless people all the time. I tend not to hand out change, but if I have leftovers from a meal I'll give those away. They have always been grateful.

Ariel Goldring

I would spend the entire $10 dollars at the hotdog vendor for myself, given I, unlike the beggar, have taken my time to work so I can use my own money. Furthermore, the money should go to the other person in the equation who is working, the vendor. That leaves the beggar, who is (a) not working (b) drunk. If he cared enough to get money or food he wouldn't be doing any of those two things. The issue isn't who it will impact more, it is who deserves it more even if impacted less. Not only does the vendor deserve it more (since he is actually working), but giving him the $10 for the hotdog benefits two people: myself (I get to eat the hotdog) and the vendor (he makes a profit). Would I give the money to the undeserving drunk beggar, only one person would benefit, the beggar. That is unless he spends my money on a hotdog from the vendor. Given he is drunk, he will probably use the money for more alcohol. An expense I am not prepared to support.



I suspect that Ms. Ehrenreich would not give the wino her $10 but instead find someone who looks like a Republican and make him give the wino the money.

Rita: Lovely Meter Maid

Did anyone give an honest answer? Here's one: I would ignore the beggar's request for money but feel guilty and bad for him (or her). I would wish I could "do something" about all the pain in the world. I would think about how many people judge the beggar and feel somewhat judgemental myself, but fight to quell this response (and thus, feel virtuous for Not feeling judgmental; hey, it's gotta count for *something*). I would buy a hot-dog, if hungry. Then walk on...

Chaz Littlejohn

This was a fantastic post with such an interesting cast of characters. I have no comment about the street charity except that Arthur Brook's response clearly identifies the chief problem with international aid (namely that you're either giving people money that is probably going to waste or you're acknowledging the fact that you don't respect the sovereignty of the poor).

Please do more Quorums, and welcome to!

Steve Knowles

Man, I couldn't even finish reading that Taleb guys ramblings. I liked Cuban's "essentially a non-answer" answer better. And I had to laugh at the thought of a vegetarian beggar. Come on!



The person selling the alcohol to the beggar is also a working individual. So, don't base your decision on how many people would benefit because in both cases the answer is two.


First, Taleb you need to get your A's and B's in order. You fooled yourself with that stereo logic!

I think Mark Cuban has the most realistic answer. We'd probably have to walk past another 10 street corners to get where we're going, and why would we have any desire to give money away?

Mike In Tennesee

Nassim Nicholas Taleb sounds like an unbearable windbag. I would use my ten dollars to pay him to stop talking.


If I had to spend the money, I'd give the wino the $10 on condition that he hassle the hot dog vendor into moving to another street corner. Or maybe I'd offer the hot dog vendor $10 for some insight into where he and his colleagues wash their hands before serving their disgusting, unhealthy tubes of saturated fat to thoughtless passers-by, as that's something I've always been interested to know.


I would buy a hot dog from the vendor and give the beggar an opportunity at a meal. If yelled at, as I have been by beggars before for not offering money, I would enjoy the hot dog, myself. . Being a “fat cat”, myself, I believe that being judgmental about other's additions is really stupid and solves no problems. So, in the best of all worlds, I would have a ticket available that I had purchased from some charitable institution that provided meals and lodgings which I could offer the beggar. If he tossed it, I would still have given to a charitable organization. If he sold it to another beggar, again, I would have contributed to someone else's welfare.

John Smith

I will judge the begger harshly and not encourage him to beg by keeping the money to myself.

I may buy a hot dog if I am hungry, but otherwise keep it.

John K.

Well since I consider this a wealth creation question as well as a utlity maximization I would answer this in two ways.

First, the economist inside me would say that each person acts based on their own personal internal utility maximization (smith). Second I would say that this is one of the truly great ways to look at philantropists. The fact that their internal utility maximization comes from giving to others is high praise for the promise of people in general.

Second, this is a value maximization question. Say that your utility maximization curve swings the appropriate way such that you wish to help others. Next we are trying to maximize our dollars. I would purchase a hot dog or two from the vendor plus drink and pretzel (everybody loves pretzels) and give said food to the beggar. In this way I have created value for three people. total value for me ($10 worth of philantropic utility, depending on internal scale), for the beggar $10 worth of food (in this case the actual value of the good al la the barter system (he/she recieved $10 dollars worth of goods and paid $0 a net gain of $10), and the vendor recieved $10 worth of business minus the costs of the hot dogs (let's say that the cost discounting personal salary of the goods purchased was $1) total net gain to all involved is $19 and $10 worth of personal utility. This is the highest possible value outcome based on the assumption that my personal utlity maximization runs a certain way (which is really undefinable so the $10 worth of personal utility is really quite variable depending upon the person).

This is of course not the only answer and ignores the fact that the beggar may be a vegitarian in which case the total gain may be less or that the vendor has a cost of $1 and is not renting the vending area from a company, in which case his/her take would also be lower.

I pose a question back to you. How do you shift the utility maximization curves of enough people to reach economies of scale worldwide (Translated this means how do you inspire enough people to be philanthropic in nature such that this above scenario becomes commonplace)



bart stevens

I would buy a hot dog for the homeless guy or girl


Bart (from Belgium)

Frank Drake

I would tear the $10 Hamilton in two equal pieces, letting the players (the vendor and the bum) negotiate what works for them.
Maybe the vendor would create something better than just food, money, and indifference. Maybe the bum would keep the vendor's area clean of litter or other things that the vendor doesn't have time to address.


An insoluble problem that goes much deeper than the dipsomaniacs and Nathan vendors of America. Peddler vs. panhandler. I might ask why the two are there in the first place, but I think we already know this answer. I live in the city with the highest per capita number of "registered" sexual offenders. Increasingly, city ordinances across the states are making it more difficult for sex offenders to live and work, well, anywhere. As well they should. Local ordiances in nearby counties set 1000 feet minimums for daycares, schools, play grounds, parks, and other venues where "children congregate". Perhaps, this will soon mean malls, churches, beaches, etc... But what this aditionally means is that sex offenders do not have a place to live. While many honest homeless, vetrans or not, can reap the benefits of social programs, shelters, recoup& refuge programs, sex offenders can not, nor should they. In fact, our local shelters give out housing vouchers up to three months at a time, or let those in need of medical or mental health care live at the shelters for up to 18 months with free hot showers, hot meals, and clean clothes. The catch: they have to be substance free and pass a back ground check which shows that they are not A. a sex offender, and B. never been convicted of a violent crime. Let's see, this includes rape, domestic violence, spousal abuse, aggravated stalking, aggravated assault, we get the picture. So where does society place these people? Until recently, we had tent city. And now? I say we open Alcatrez back up and give them free one-way bus tickets. I hear there's a nice view of the water there. As for me, I can donate an hour at the soup kitchen, clean my closet for donations, offer tithes so the church can donate to CASA, but my ten bucks are better invested elsewhere.


John K.

I got a weird message when I tried to post this before:

to give a brief synopsys of what I wrote before:

This is a combination Utility maximization, value creation question. Depending on the persons personal utility maximization curve (adam smith), they can spend the $10 at the vendor and give the food (barter) to the beggar. This insures a net gain to the system of $19 (assuming a $1 cost of goods for the vendor) and $10 of utility for you the buyer. The last $10 of utility varies depending on the person of course and could be measured in utiles.

I also posed a question back which was, How do you make this into a trend to the extend that economies of scale are reached population wide and the movement gains momentum. The only place I have been able to look is personal return barter. The area in which the person operates can create value greater than the $10 if the person gives it to the beggar. Once economies of scale are reached the oppurtunity cost of giving the $10 to the beggar in any way decreases to point where it could be a positive value. Something to think about.



Ariel Goldring

Charles, if the beggar uses my money for alcohol, only one person benefits: the liquor store. There is no benefit for the beggar to have alcohol besides joy, which given him being homeless he should get his priorities strait. Now again, if I spend the money on myself to get a hotdog, two people benefit: me (I eat) and vendor (he makes money).