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August 7, 2008

Incentives Matter

By: Wade Rousse

Summer is here, and my commute is often a stroll across the Loop. As I walk, marveling at the city around me, I’m inevitably interrupted by someone asking for money, food, or something similar.

Being a transplanted Cajun and not very familiar with big-city life, I’ve fallen for my share of scams. The last straw came when a well-dressed gentleman at a gas station on Roosevelt Avenue asked me for help. He’d finished pumping his gas to realize he’d left his wallet at home. His wife in the suburbs was preparing to bring his wallet to him, but he would certainly miss a meeting with one of his biggest clients.

I didn’t want this guy to miss a payday just because he left his wallet at home. So I lent him twenty dollars to pay for his gas and he said he would mail me the money when he got home. Two years later, I’m still waiting for my $20.

Scammed again!

Thinking back to that day, I realize that although I often talk (and write) about economics, I don’t always apply its principles to my life. We all agree incentives matter, but is dropping a quarter in a guitar-case the wrong incentive? If the donations stopped, would this behavior stop? Would a more profitable one emerge? (Like going to school to study economics…a guy can dream, can’t he?)

I followed through on this thought process and stopped my street donations. Not much has changed. Maybe I need some help?

Posted by Wade at August 7, 2008 2:15 PM

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Is there any room in economics for cynicism? How would that affect speculation? You have rotten luck collecting twenties.

Posted by: Mikie at August 7, 2008 6:19 PM

You might want to study the idea of psychic income as an answer to your generosity. Many people "do the right thing" because it makes them feel better, regardless of the motives of the recipient of their generosity.

This positive feeling is their incentive to the transaction. They receive something they value more than what they give up.

Posted by: Tim at August 10, 2008 4:00 PM

Tim, I’m aware of psychic income. But the question is: Are these “donations” creating the wrong incentive? If they completely stopped, would this behavior stop?

Posted by: Wade at August 10, 2008 7:01 PM

I see. You're asking from the perspective of the panhandler. Essentially, is there sufficient payback?

My apologies. I thought you were tackling it from your perspective.

Posted by: Tim at August 11, 2008 1:06 PM

Exactly…no need to apologize. Take care, and enjoy your time off.

Posted by: Wade at August 11, 2008 1:50 PM

I completely understand your dilemma and often find myself contemplating the same decisions. Please let us know if you have an epiphany!

Posted by: Kevin at August 12, 2008 3:03 PM

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