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.

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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.