Are the Rich Really Less Generous Than the Poor? (Update)

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1:15Hey there, Stephen Dubner. The episode you're about to hear is one that we originally made in 2017, but we have updated it and are replaying it now as part of a new campaign called Pods Fight Poverty, which is run by the charity Give Directly. Their goal is to, well, give directly to families in poor countries, which, according to the academic research on the topic, is a really good idea. If you are inspired to give, and I hope you are, go to givedirectly.org slash freak radio. We are joining a bunch of fellow podcasters here, and the goal is to collectively raise $1 million, which will lift 700 families out of poverty.

1:56700 families. That's something to feel good about. Again, go to givedirectly.org slash freak radio to learn more about this cause. Thanks for giving whatever you can. And as always, thanks for listening.

2:13What inspired this is a discussion that has come up in the last four or five years about the growing income disparity. We're rich growing richer, the poorer poorer. That's Jim Andrioni. I'm a professor of economics at the University of California in San Diego. The discussion he's talking about, now I'm guessing you've had this discussion yourself, the rich, as the data have shown, are getting richer. So it's important to know whether the rich are going to work in the best interest of the whole society. One obvious question to ask, how does wealth affect how a given person treats other people? The scientific evidence to date has been not very encouraging.

2:58So no, it's not just you. Science also agrees that the more money a person has, the more likely she is to be an inconsiderate, rude jerk. We took to the streets to see how widely held this view is. We asked a simple question. Who do you think are more selfish, rich people or poor people? That's a tough question because I've known both. Rich people are more selfish. because if you live in comfortable and you see the next man out here not living and you can't help him, that's selfish. That is selfish. I would say the poor person is more willing to give because they know what it's like to not have.

3:38I don't think it depends on your wealth. I think it depends on the type of person you are and the way you were raised. Maybe rich people, I think, just because of maybe more of the stigma. I don't know if they actually are, but I think rich people. I don't know the answer to that. I know a number of rich people who are extremely generous. But at the same time, I have seen homeless people be very generous with each other. I think it depends on the individual. I don't necessarily think it's an economic determination. We've been told, however, that it is an economic determination. In a country more and more polarized by inequality, Paul Piff led a series of startling studies, Wealthier participants took two times as much candy from children as did poor participants.

4:26There are a lot of studies that came out saying that in some domains, some ways, a lot of ways, the rich people seem to be less pro-social is the term that a psychologist used for that. Yeah, there's all this view, right, in society that the rich are super selfish. That's Jan Stoop, another economist. Even in the Bible, right, there's this quote that it is easier for a camel to crawl through the eye of a needle than it is for a rich man to enter the kingdom of heaven. Even in pop songs, you hear about how selfish the rich are.

5:11But here's something important to keep in mind. A lot of the scientific evidence for the rich being selfish came from lab experiments. But there are differences between the lab, our lab setting, and the field. That's Nikos Nikoforakis, another economist. So it's important to go and check your intuition in the field. And that's exactly what Nikoforakis, Stope, and Andrioni did. They ran a field experiment. Well, why don't we just go and throw these letters to houses of the rich and the poor people and see, you know, who is nicer? Who is more pro-social? All it took was a Dutch postal worker's uniform, some envelopes stuffed with cash, and a slight sense of the absurd.

6:02Today on Freakonomics Radio, what did this experiment show? Yeah, so for us, the results were quite shocking.

6:20This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

6:37so would you consider yourself an altruistic person not altruistic well you know when you study altruism people always presume that's because you are altruistic so that opens you up to lots of people hanging around you and your cocktail hour time hoping you're going to pay for the drinks. I would think you could make the opposite argument, though, which is plainly I can't buy you a drink because that would establish a set of priors that would show a bias in my research. Yes, that's what I say. You know, if I understood this altruism stuff, I wouldn't have to study it. Jim Andrione was a pioneer in developing what's known as the economics of altruism.

7:16The idea that studying people who are governed by care and concern for others and who work hard to give their money away all seemed like outside of economics. So that was something that was for the sociologists to understand, maybe some psychologists, but it's really not economics. Why didn't you leave it to the sociologists? What was it that led you to become interested? There was a paper that I read when I was in graduate school by a guy named Russell Roberts. He drew some conclusions that I thought didn't quite make sense to me. And that was that he assumed that people care about the total supply of charity, irrespective of where it comes from.

7:55So if the government comes and takes money from your pocket, gives that to the charity, then you should dollar for dollar withdraw donations to the charity. So was this about the notion of crowding out and how one kind of dollar would crowd out another? Was that essentially what he was exploring? Yes. So that's what we've come to call the crowding out hypothesis in economics. You don't care where the dollars come from or how they get to the charity. You just care about the final consumption of the charity and the final consumption of yourself. and any path to that is just the same. And if that is your assumption, you're going to be able to draw conclusions like the government should just get out of the business of helping poor people because if we're altruistic, then the private sector will take over that responsibility all on its own.

8:39And what made you care enough about that to want to do something about it, to want to challenge it? Because I'm stubborn, basically. And I see something that I think isn't right. I have to kind of go figure it out and figure out what's not sitting with me until I produce a paper about it.

9:02The paper that Andrioni produced in 1988 showed that government contributions did not completely crowd out private gifts. That is, in contrast to the direct dollar-for-dollar reduction model, a$1 increase in government contributions decreased private giving by only 5 to 28 cents. This led to the next question. Why do so many people give away so much money when they're not obligated? Andrioni called this phenomenon warm glow altruism. The idea that people are motivated to give to charities for reasons other than the output or the production of the charity itself, that I'm happier when it's coming out of my wallet.

9:46But what makes me happier when it comes out of my wallet? That's, boy, there's just a huge list of things to think about that could possibly be at stake here. Name some. My personal impact. I can have some guilt that I'm relieving. I have some pride. I have sympathy for the person that's being helped. I get a reputational boost. It helps me in other domains. All those things are motivations. Some of those stories are much more complicated than others to tell. I think a lot of people would hear that and say, but wait a minute, altruism is meant to be pure, giving, selfless. And you're saying there's utility derived from giving.

10:20So how do you square that circle? We call it impure altruism. So, you know, I'm not going to give to an organization that I don't think is doing good work and the work that I believe in that I want to support. Just like I'm not going to eat food that I'm not hungry for. But the actual food that I choose, I choose because it tastes good.

10:45Andrioni was arguing that pure altruism is very rare. Much more common are impure or warm glow altruism, which reward the giver along with the recipient. Now, you might argue this presents humanity in a bad light, that even when we give to charity, we want something for ourselves. But that's what the data seem to indicate. And moreover, if you really care about raising money for charity, wouldn't you like to understand a giver's true motivations? And, even more valuable, what specifically are the invisible forces lying behind altruistic behavior? And that's what basically in the last 25 years or so since I published that paper, there's been huge rich literature trying to answer that question.

11:33Andrioni and other economists have explored all kinds of angles on altruism. The power of matching funds and prizes, the role played by guilt and the herd mentality, and how blonde women raise more money than anyone else by a long shot. If you want to hear more about this, you can check out an earlier Freakonomics Radio episode. It's called How to Raise Money Without Killing a Kitten. Now, in the last several years, as income inequality has become a hot topic, there's been more and more work on the relationship between income and altruism and other forms of what's called pro-social behavior. You may have heard about this research.

12:12Experimental evidence that rich people are more likely to break the law while driving, cheat in a game of chance, also to lie during negotiations, and endorse unethical behavior, including stealing at work. The academic paper that resulted made headlines everywhere. The paper making headlines was by Paul Piff, an associate professor of psychology at the University of California, Irvine. The evidence he presented was disturbing, to say the least. People all the way at the top who made$150 ,000,$200 ,000 a year were actually cheating four times as much as someone all the way at the bottom who made under$15 ,000 a year just to win credits for a $50 cash prize.

12:59But how compelling was the evidence? There's a difference between what we then call behavior or preferences. That, again, is Jan Stoop. I am a behavioral economist at the Erasmus School of Economics in the Netherlands. And the reason this matters, the difference between a behavior and preferences? The reason why this matters is that situations give different incentives to behave differently. We call it the endogeneity problem. Jim Andrioni again. Are the rich fundamentally different people than the poor? Or do the rich face fundamentally different choices than the poor? For example, there are studies that show that the rich tax evade more.

13:44Does that make them more selfish? A rich person is more likely to have self-employment income, going to itemize their taxes, be able to overstate some deductions here, hide some things there, and more easily get away with cheating. But if you're poor, you probably have a job that pays a wage and your employer reports your income and your taxes to the IRS, and there's really no opportunity for you to cheat on your taxes. So also the previous literature, for example, about the rich maybe speeding more in traffic or cutting off other pedestrians. A rich person might say, well,$200 is not a pittance, but it won't materially affect my life.

14:23Whereas a poor person would say, if I get that$200 traffic ticket, I'm not going to be able to pay my daycare worker this month. So to conclude from this behavior that the rich have more selfish preferences, that seems like a bit of stretch. So that made us wonder. They wondered in part because many of the findings about the rich being more selfish were derived from surveys or lab experiments. But it can be tricky to measure something like altruism in the lab for several reasons. Yeah, the term is the experiment or demand effect. So if subjects know that they participate in an experiment, they may behave a little bit differently than they would otherwise.

15:02If they think you're studying generosity, they don't want to be seen as not being generous. Also, many of the studies, for example, by Paul Piff, use student subjects. And they then use a trick where they prime these subjects to either think that they're poor or to think that they're rich. And they do that by having them compare themselves to the richest or the poorest people in the country, something like that. But from an objective standpoint, they're sort of an homogenous group, right? They're about the same age and about the same wealth. What we found is that the highest earners, they were actually substantially less likely to give to help others.

15:46Nikos Nikoforakis again. I'm a professor of economics at New York University in Abu Dhabi. He had run his own lab experiments. We actually had individuals come into the lab, perform a task and earn a non-trivial amount of money. And then we paid them according to their relative performance and asked them at the end whether they would like to share some of their earnings with other people who may have earned less in the lab. His findings were similar to Paul Piff's. People with more money were less likely to share. But of course, the problem here is that people outside the laboratory earn their wealth in very different ways.

16:29Some people just inherit their large fortunes or they just are born with a gift and they have a brilliant idea that makes them very wealthy. Why else might lab findings not reflect reality? Another reason is in our lab, the most competitive people would inevitably earn more. But in reality, we also have vetting processes typically in organizations such that we reward competitiveness. But you also want to make sure that the person you put in a key position is not some kind of mean-spirited, selfish person who just wants to extract resources from the organization. And the third reason? And of course, the third reason is that these laboratory studies are typically done with students who earn, in our case, a considerable amount of money.

17:21But when we're talking generalizing these results, the rich people are at least millionaires. There are studies that use panels. Jan Stoop again. And panels being a group of people who will sign up to participate in a study. So with this trick, you can get rich or poor households to get involved in your experiment. But here then we have another problem. And that's what we call selection bias. So it could be a certain type of household that signs up to participate in such panels. And those could be the more pro-social, scientific, do-gooders households. So it seems it's always a problem, right?

18:07No matter what kind of experimental method you use, there is a problem. The actual experiment you'd like to do is get Eddie Murphy in here and Dan Aykroyd and trade places, right? As in the movie Trading Places. Make the rich one poor and the poor one rich and see if they adopt each other's behaviors. I wait till you get to about 64, then I'd buy. You'd have cleared out all the suckers by then. I was poor and no one liked me. I lost my job. I lost my house. Penelope hated me. But, you know, we can't do that experiment in reality. So we have to see if we can measure things about the environment or about the choices people can make that would allow us to run this experiment in our minds and through our data.

18:54So if we can put something in the field and we can do it in a way where people don't actually know they're being studied, that's the best because that's the actual behavior that we're trying to study. Coming up on Freakonomics Radio, how Andrioni, Stope, and Nika Farrakis pulled off this field experiment. When I did this, I was super nervous. And, of course, we'll tell you the results. When I first saw the results, I kind of thought we failed. We found the wrong result. That's right after this break.

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21:51The economists Jim Andrioni, Nikos Nikofrakis, and Jan Stoop wanted to run a field experiment to find out if the rich are more selfish than the poor. Here's Stoop. The background is there is this laboratory experiment, which is pretty famous in our community, called the dictator game. For what it's worth, we wrote about the dictator game at length in Superfreakonomics and a related game called Ultimatum. And in the dictator game, there are two players. One is the dictator, and he gets an amount of money, typically$10, and he can split that between himself and the recipient. Split it by, say, putting some of the money in an envelope and giving it to the other person.

22:36And any amount of money that's given is typically interpreted as a measure for altruism. But this kind of lab experiment, as we discussed earlier, has a lot of limitations, especially the subject's awareness that they're in an experiment, which might increase their desire to appear generous. So I was thinking, how can I have such a game in the real world where money comes falling from the sky, let's say, and people can choose to divide it between themselves and someone else? And then I thought of this envelope trick. not the envelope trick from the dictator game a different kind of envelope trick so there's this household and all of a sudden they receive an envelope with cash it's not theirs but they have the power to give it back yes or no so it is a little bit like they play a dictator game but then in real life and without people knowing that they participate in an experiment so when jan phoned me up and he said, you know, I have this technique.

23:40I said, well, why don't we just go and throw these letters to houses of the rich and the poor people and see, you know, who is nicer? Who is more pro-social? We found poor households and rich households in the Netherlands. And we did it there because we can get a lot more data about the households. So we can know how rich they are, know how poor they are. That's because European governments, like the Netherlands government, have much more open policies about collecting data for research purposes. Plus which Jan Stoop happened to live there. I said, look, guys, let me conduct all the treatments here in Holland because I just I know that you're probably too busy to do it.

24:22And I know that I would love it too much to do it. So I think it's a win win for everyone. The idea was to intentionally misdeliver a letter that was addressed to a real person with real money in it and see whether people kept the letter or send it on to the rightful recipient by dropping it into a mailbox on the street. We picked a little greeting card that was signed to be coming from somebody's grandpa. The front side was a picture of a windmill, just an old fashioned, something typically that a grandfather could choose right and then on the other side of the envelope we had a message dear joost here is 20 euros for you grandfather and then there was a note of 20 euros joost the addressee was a real friend of jan's and the envelope listed his real street address so that it could be easily forwarded it also had a real looking postmarked stamp courtesy of some skillful photoshopping.

25:21There was only one weird detail. The envelope was semi-transparent, so you could clearly read the card and see the cash. Because then our subject in the experiment, the rich household or the poor household, they can see that grandfather intends to send 20 euros or 5 euros to Yoast. For experimental purposes, there would be two cash treatments, either 5 euros or 20 euros. And so I get this question a lot, right? Who sends out money in a transparent envelope? That is kind of weird, right? Yeah. But from a scientific standpoint, we are interested in treatment differences. We always use this same envelope.

26:04So that means that the weirdness of it is the same in all treatments. Okay. So the recipient can clearly see the cash inside the envelope. Now, this is something that's a benefit to the proper owner. but it's also a benefit to the accidental recipient. They also loaded some envelopes, not with cash, but with bank transfer cards, something like a check, which therefore can only be cashed by the person it's made out to, again, in denominations of both 5 and 20 euros. Which is worthless to the accidental recipient, but it's still worth 20 euros to the intended recipient. So if you're altruistic, you still have the same incentive because you're going to help the intended recipient just as much in both cases.