The Difference in Between Rich and Poor Isn't Always Black and White
Who will take the money bait?
By Jan Stoop, Erasmus University Rotterdam; James Andreoni, University of California, San Diego; Nikos Nikiforakis, New York University Abu Dhabi
Social scientists have long known that the rich are not exactly model citizens.
They evade taxes more often, flaunt traffic laws that protect pedestrians and donate less frequently to charity. In the aftermath of the Great Recession, there has been no shortage of reports in the popular media on their selfishness and opportunism.
This bad reputation, whether deserved or not, is not a recent phenomenon. Even the Bible tells us that “It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God” (Mark 10:25).
But are the rich really so different from the rest of us? In recently published research, we used a natural field experiment to try to find out.
A look at incentives
Before we get to that, it’s important to look beyond the selfish behaviors mentioned above and consider the different incentives and opportunities faced by the rich that might lead them to make such immoral choices.
For instance, because rich people face a higher tax bracket, every dollar of income they hide from the tax collector benefits them more than it would a poor person.
Similarly, although both rich and poor get the same penalty for a traffic law violation, a fine that would be devastating for a person in poverty amounts to a pinprick for someone who’s wealthy. And while the rich are less likely to give to charity in any one year, they instead tend to make large gifts later in their lives.
So even if the rich often do behave more selfishly than the less well off, their behavior might be more the result of different circumstances rather than differing moral values.
To suss this out, we designed a field experiment in which we “misdelivered” transparent envelopes with money to over 400 rich and poor households in a medium-sized city in the Netherlands. Returning envelopes is individually costly (mostly in terms of time) but benefits the rightful recipient, making this an altruistic, “pro-social” act.
All the envelopes contained €5 (US$5.34) or €20 as well as a card with a message from a grandfather to his grandson explaining the gift. We sent the money, however, in two variations: either as banknotes that could be easily seen by anyone handling the envelope, or as a bank transfer card, which is a slip of paper that orders a bank to send money from one account to another. In other words, the cash acted as “bait,” while the bank transfer card would have had no value to the individual.
Our setup had two advantages over other studies on the topic. First, participants did not know they were being studied as part of an experiment. They were, therefore, not changing their choices for fear of what we might think of them.
Second, there was no “selection bias” in our data that might have skewed the results because the rich tend to shy away from participating in experiments (possibly because they don’t have much time to participate or don’t like the idea of researchers having data on them). In our setup, every rich or poor household was randomly selected.
The overall results showed that the rich returned roughly 80 percent of all envelopes, regardless of whether it contained cash or a card. When cash was used, the rich returned only slightly less. So the rich were somewhat sensitive to the money bait, but not much.
The poor, however, were much less likely to go to the trouble of returning the money and were much more vulnerable to the bait inside the envelope. They kept roughly half of the noncash envelopes and roughly three-quarters of the cash envelopes.
The rich vindicated?
Does that mean that despite their reputations as misers, the rich are actually more pro-social than poor people? And in fact, it’s the poor who are selfish?
Well, not so fast. Before drawing any conclusions about character, we need to return to the question of incentives we explored earlier.
One obvious difference in the incentives the rich and poor face is that the latter have a higher need for money. This easily explains why a poor person would be more likely to keep the cash envelopes.
But what about the noncash envelopes? Nothing could be gained from holding onto them, so what does the fact that half of the recipients didn’t send them in tell us?
Looking more closely we saw a striking pattern: The poor were most likely to return the noncash envelopes in the week they got paid their salaries or unemployment benefits (people in the Netherlands tend to get paid toward the end of the month). But then returns became steadily less frequent until, in the week before their pay or benefits arrived, almost no envelopes containing bank transfer cards were returned.
Our proposed reason for this draws on new research showing that the financial stresses that the poor suffer affect their cognitive abilities, how they set priorities and how chaotic their lives become.
The reason we found this significant is that research shows that when people are under financial stress, their cognitive abilities are affected and they set priorities differently.
Using a theoretical model to help us interpret the data, we can measure a household’s “neediness” of the cash and how financial stress changes over the course of a month. When we do so, as one might expect, we find big differences in needs and stresses between rich and poor. But what is more important is that, when we statistically remove the influence of these factors, we no longer find differences in the relative altruism of the rich versus the poor.
These findings show the perils of inferring deeper motives from casual behavior. While our raw data show clear differences between the rich and poor in terms of pro-social behavior, digging a little deeper erases them. Our conclusion is that incentives are the biggest determinants of pro-social behavior and that neither the rich nor the poor are inherently kinder or more selfish – in the end all of us are susceptible to behaving this way.
“Trading Places” offered insights into what happens when a wealthy and poor person swap spots.
In a famous conversation about the character of the upper class, Mary Colum, a famous critic, tells Ernest Hemingway that the only difference between the rich and the poor is that the rich have more money.
Our data support Colum’s view, suggesting a poor person would behave just as someone who’s well-to-do if the two were to trade places, and vice versa.
This is not to absolve those who evade taxes or break the law. What it suggests is that the rich are no different than the rest: If we were to put the poor in their place, they would likely behave similarly.
Jan Stoop, Associate Professor of Applied Economics, Erasmus University Rotterdam; James Andreoni, Professor of Economics, University of California, San Diego; Nikos Nikiforakis, Professor of Economics, New York University Abu Dhabi.
This article was originally published on The Conversation. Read the original article.