Bryan Caplan  

Don't Do Me Any Favors

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What do you do if someone you don't like tries to give you an expensive present? Homo economicus would happily take it: "It's not like I signed a contract!" But most people would at least think twice before accepting the gift.

Why is this? My best guess is that (a) Our natural psychological reaction to a favor is gratitude and a desire to reciprocate, and (b) We are rational enough to foresee our reaction and try to avert it. Broadly construed, refusing a gift is a selfish act, because you know that if you take this payment, you will pay it back, even though you don't have to.

Examples are everywhere. Charities often raise money by giving you free stuff. They love to send people free return address labels. Their hope is that people will feel obligated to repay the favor. In fact, their hope is that people will feel obligated to respond with a donation that massively exceeds the trivial cost of the labels.

Another interesting case: Eli Berman of UC San Diego observes that terrorism is often bundled with philanthropy. Groups like Hamas don't just deploy suicide bombers; they also run schools, hospitals, welfare programs, and so on.

Members of these radical religious groups are hardly your typical “bad guys.” They exhibit productive, constructive and noble behaviors: acts of piety, charity and self-sacrifice.

Why do the two come as a package? Berman's interpretation is that these groups initially attract members by supplying "club goods" - that is, collective benefits for their supporters. Once people enjoy the group's club goods, it can induce them to sacrifice for the group by threatening to throw them out of the club for free-riding.

The bundling of violence and charity is striking, but I have a slightly different take on it. Philanthropy helps recruit terrorists, but the reason is not that the club ejects free-riders. The reason philanthropy helps is that it makes people feel grateful, which leads to a desire to return the favor. For the most part, people return the favor the cheap way: Not ratting them out to their enemies. But some recipients go further and become terrorists out of gratitude.

The upshot is that economists overestimate the severity of public goods problems but underestimate the severity of rent-seeking.

Public goods problems are less of a problem than we usually think because people are inherently uncomfortable with free-riding. Our emotional constitution urges us to repay favors.

Unfortunately, our sense of gratitude also paints a target on our backs for rent-seekers. Think of it this way: You can turn a profit if you can figure out a cheap way to make people feel like they owe you. Since people probably would rather not accept your gift in the first place, the trick is to send them a gift "they can't refuse." Mail them return address labels, or just loudly do things that "help everyone in the community."

Giving people stuff for free might seem like an absurd way to earn a profit, but normal human emotions make it a viable business model.


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TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/270
The author at The Importance of... in a related article titled Feeling Guilty About Free-Riding writes:
    Economics Professor Bryan Caplan discusses human reaction to people who give away free stuff on EconLog (Don't Do Me Any Favors). How is this relevant to copyright?Public goods problems are less of a problem than we usually think because people... [Tracked on May 30, 2005 12:38 PM]
The author at Catallarchy in a related article titled http://catallarchy.net/blog/archives/2005/05/30// writes:
    Bryan Caplan (who I just had lunch with Friday, bitches) opines: Why do [terrorism and charity] come as a package? Berman's interpretation is that these groups initially attract members by supplying "club goods" - that is, collective benefits for... [Tracked on May 30, 2005 2:20 PM]
The author at Mike Linksvayer in a related article titled Public Goods Rent Seeking writes:
    Bryan Caplan points to a fascinating paper on the economics of extreme religious groups which explains the relationship of public goods produced by such groups and sacrifice demanded by the same. Caplan writes: The upshot is that economists overesti... [Tracked on June 1, 2005 2:16 PM]
COMMENTS (13 to date)
Danno writes:

Have you read Robert Cialdini's "Influence: Science and Practice"? One of the chapters elaborates exactly on this point, of reciprocation and gratitude.

You might like it, goes into why a lot of people end up suckers despite what they should know better. Written in a very relaxed style too, so it would be decent summer leisure reading.

The way terrorists organizations use charity to attract recruiters looks very similar to way the governments attract army recruits. That is by investing in the community resources and then invoking patriotism and celebrating sacrifice for the sake of the nation. If governments invoked need for security and provided full payment for the services rendered that would have been fine.

jaimito writes:

Yes, terrorists (and the maffiosi and criminals in general) act from a sense of obligation toward the benefical organization that embraced them when feeling in stress, and personally towards the good and kind and powerful men who command these organizations. It is a paradox, but it has been noted that terrorists feel no personal animus against their victims, they dont see them as significant or relevant.

Paul writes:

Excellent post! presented very clearly, even my teenager understood it.

Bob Knaus writes:

The cheapest way I can think of to make people feel like they owe you is to have a crumply cardboard sign saying "Will Work For Food" and hold it up near a busy intersection. Nice additional touches are a 5-day beard, poorly worded explanation of why you are hard up, and a wobbly gait.

A couple of my well-meaning friends have actually tried to give these guys food instead of money, and were astonished at the invective (and in one case food!) that was hurled at them.

I have long maintained that this is simply a street-corner market in operation. Think of it as a drive-up guilt relief service. You purchase the amount you need, and drive away satisfied.

Methinks that donors to terrorist/social service organizations may experience similar guilt relief in exchange for their money.

Dan Landau writes:

The points made about gifts pressuring the recipient to give in return and terrorist organizations using this tactic are valid but over drawn.

People need the support of friends, relatives, groups, etc. in many situations. If you don’t reciprocate a gift, ties with friends, relatives, or groups can be weakened. The built in emotional feeling you should always reciprocate thus is beneficial for long run utility maximization.

Terrorist do recruit by giving services. However, do you really believe all the suicide bombers do it out belief they should give their lives for the cause? How many of them are threatened that if they don’t blow themselves up, they and members of their families will be killed? Terrorist organizations are continually, “executing “traitors” or “informants of the enemy.”

Bernard Yomtov writes:

Adding to jaimito's comment:

Berman's observation is hardly new. It has often been the case that outlaw groups provide benefits to the community they come from. The opening scenes of "The Godfather" give us a cinematic version of this, but the behavior is real enough.

This is partly an implicit bargain for support, concealment, and the like. It is also a way to create the image that the outlaw is really acting on behalf of the oppressed against their oppressors, who hold illegitimate power. Think of Robin Hood. Think of the highly glorified image of Depression-era bank robbers.

The behavior has been common throughout history. The historian Eric Hobsbawm (yes, yes, he's a Marxist) has explored this theme in his book "Bandits," published in 1969.

Andrew M writes:

Bryan,

Can your theory also be used to explain some or all corporate philanthropy? (Maybe Mobil sponsors Masterpiece Theater to buy off hostility that would otherwise be expressed against it.) I'm only guessing, but such philanthropy seems bad value for money if interpreted as mere advertizing.

Michael H. writes:

Hi Bryan
The perfect example of the free gift that obligates a sale in business is wine tasting. Many wineries will offer free samples. Almost everyone feels obliged to buy a bottle after sampling the equivalent of a glass of wine.

Of course the wine makers have two factors in their favor: the free gift makes you feel obliged to buy the product and the wine impairs your judgement.

Half Sigma writes:

"You can turn a profit if you can figure out a cheap way to make people feel like they owe you."

Certain big bloggers made lots of money getting people to donate to their blogs.

Donating money is irrational behavior now that I think about it. I guess that's why I never donate anything.

jaimito writes:

The obligation entered into by accepting a gift is very real and I think the Japanese have a word for it: "on". I may be wrong. I also seem to remember that the Japanese social life includes subtle and not so subtle games of who succeeds in imposing on the other a debt of courtesy or "on". It is like who opens the door to whom, the loser enters first, the winner succeeds in imposing on him a kind of debt. I think the phenomenon is real and we are defenseless against it.

Tom West writes:

Mr. Caplan is right on the money here. I don't know how many times I've seen a poor person holding open a door at an entrance to a subway, and at least 3/4 of the people deliberately take the effort to open a door right beside him or her. (If it's even barely plausibly crowded enough to do so without appearing rude, otherwise they'll use the open door but looked pained or irritated.)

Clearly this instinct is built in at quite a low level.

Anton Sherwood writes:

A Jewish friend (born circa 1950) told me that his Babtist father-in-law remembered the KKK fondly as a sponsor of innocent activities for boys.

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