Are the rich more selfish than the poor? Lessons for corporates from behaviour economics

January 17, 2019

For years, behaviour economics has relied on the same methods that companies use to answer questions on the behaviour of human beings, such as estimating propensity to buy products. These methods consist in putting a bunch of people in a room and interacting with them. Think focus groups. Sometimes, the interaction involves designing experiments and observing how participants behave in front of a computer (such as the dictator or ultimatum experiments) or in other cases simply interviewing them.

The results that have been obtained through these means have for years been respected as proxys of the real world. But experimental economists have long been conscious of its limitations. For starters, the participants are under the watch of someone who could be the their professor, "bribing" them to come in exchange for a monetary incentive and expecting them to behave as they would in the real world. No to mention, the adverse selection of participants. In what has been dubbed the WEIRD problem (for Western, Educated people from Industrialized, Rich and Democratic countries), most of these studies depend on full-time University students who have flexible schedules - not really representative of the real world. Tu sum it up, the wrong environment, wrong incentives and wrong participants can lead researchers to the wrong conclusions. Does that ring a bell for Consumer Insights departments?

 

Remarkably, social scientists have come to mimic the methods of a very distant kind of institutions: startups. Startups, unlike universities and corporates, cannot afford to rely on renting rooms, paying consumers and expecting reliable answers. Thanks to this constraint, they stumbled upon a superior approach. The mantra for entrepreneurs has always been “out there, in the market”, with low-fi prototypes, small tests, pre-selling and smoke tests. And this sort of thinking has encouraged the discipline of "field experimentation".

 

At NOBA, we don’t believe in traditional focus groups and market research, and hence, are much more inspired by the approach used by the likes of James Andreoni, Nikos Nikiforakis and Jan Stoop. They are three economists from three different Universities around the world who set out to answer the question "are the rich more selfish than the poor?". Being suspicious of previous experiments that were conducted in controlled environments on a topic as sensible as this, they decided to ditch the classrooms and go out to the real world.
 

They chose the Netherlands as their playing field, given that it is one of the countries with the highest pre-tax inequalities in the world and the fact that data about the wealth of certain houses is easily available. The economists chose 180 households in poorer neighbourhoods and 180 households in more well off neighbourhoods. In each one of them, they would dress up as the mailman and intentionally "misdeliver" an envelope.

 

The letter was supposedly from a grandfather to his grandson and contained money inside which was visible through the envelope, such as a 20€ bill. The receiver's address was clearly imprinted, so that the person who "mistakenly" received the letter could forward it to the young child who was "supposedly" waiting for it. The address on the envelope was one that the economists controlled, so they could know which households were acting as a responsible non-selfish citizens and re-sending them.

 

The field experiment is clever because of various reasons. The person who would find the envelope would, in theory, not have the perception that he or she was being observed. Secondly, real money was involved, so people would find themselves in real-world situations having to make real-world moral decisions. Furthermore, well-off individuals are misrepresented in some classroom experiments because they are generally not willing to spend two hours of their lives to be assessed on their moral judgement for 20€. In this situation, the economists had the luxury of selecting the households they wished.

Want to know the results? The conclusions are worth a read. They provide tremendous insight into society, inequality and marginal value of money. And no, there is essentially no difference between the rich and the poor when it comes to selfishness, though there was a significant difference of who would send the envelope back (again, read the results!).

 

But reflecting on the results is not the purpose of this blog post. Rather, we would like to shed light on the tremendous amount of resources and energy dedicated on obtaining misleading insights. Companies still expect that by putting a bunch of people in a closed room with no natural light and a big mirror, paying them to talk and selecting them just because they are in a panel list, they will get a window into their true selves. Sure, it may be easy, nice and under control, but innovation requires creativity and courage. It requires being out there rather than in here.

 

Startups have realised it out of necessity. Universities are making the change. And where do you want to place your organisation?

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