Cheating the Bagel Guy

There is a fellow who comes by our office to deliver bagels. He leaves out an honor box. People are expected to leave a dollar in the box. Some don’t. He sometimes leaves notes out requesting that everyone be honest.

First of all, it is quite scandalous that some people with six-figure incomes or nearly six-figure incomes cannot find a dollar bill to pay for a bagel. The fact that the bagel is not worth a dollar is immaterial. If you eat it, you must pay for it.

Half Sigma ponders why some people would cheat the bagel guy. This is one of the issues that economist Steve Levitt addresses in his new book Freakonomics. Steve Levitt thinks that the incentives for cheating are greater in a larger firm. Half Sigma believes that small firms have happier, and therefore more honest, employees. There is no doubt that Levitt is right (he’s an economist). Sorry Half Sigma, but economists think differently.

Suppose that ten percent of workers are dishonest, but they won’t cheat if the price of cheating is too high. In an office of ten people, you will likely have only one cheat. This cheat will know that cheating will be detected and the other nine employees will know that there is at least an eleven percent chance that the cheater is the guilty party. The cheater isn’t really getting away with her crime completely. Also, the cheater was 100 percent responsible for creating an unpleasant work environment. The crime isn’t worth a stale bagel, so no one cheats.

Now suppose that there are about 20 cheats in an office of 200 people. What is the marginal impact of the 20th cheat? What really is the difference between 19 cheats and 20 cheats? No one really notices. The cheater is a classic free rider. Free riding is very tempting when no one suspects you of being the free rider.

So the bagel guy should deliver bagels to every floor with a box on each floor. The cheat will be the one who seems to always go to another floor to eat bagels.