[FoRK] NYTimes.com Article: What the Bagel Man Saw

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Tue Jun 8 03:42:18 PDT 2004


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What the Bagel Man Saw

June 6, 2004
 By STEPHEN J. DUBNER and STEVEN D. LEVITT 



 

Once upon a time, Paul F. dreamed big dreams. While
studying agricultural economics at Cornell, he wanted to
end world hunger. Instead, after doctoral work at M.I.T.,
he wound up taking a job with a research institute in
Washington, analyzing the weapons expenditures of the
United States Navy. This was in 1962. After four years came
more of the same: analyst jobs with the Bureau of the
Budget, the Institute for Defense Analyses, the President's
Commission on Federal Statistics. Still, he dreamed. He had
''potent research ideas,'' as he recalls them now, which
the Environmental Protection Agency failed to appreciate.
He developed a statistical means of predicting cancer
clusters, but because he was an economist and not a doctor,
he couldn't make headway with the National Cancer
Institute. He still loved the art of economics -- the
data-gathering, the statistical manipulation, the
problem-solving -- but it had led him to a high-level dead
end. He was well paid and unfulfilled. ''I'd go to the
office Christmas party, and people would introduce me to
their wives or husbands as the guy who brings in the
bagels,'' he says. '''Oh! You're the guy who brings in the
bagels!' Nobody ever said, 'This is the guy in charge of
the public research group.''' 

The bagels had begun as a casual gesture: a boss treating
his employees whenever they won a new research contract.
Then he made it a habit. Every Friday, he would bring half
a dozen bagels, a serrated knife, some cream cheese. When
employees from neighboring floors heard about the bagels,
they wanted some, too. Eventually he was bringing in 15
dozen bagels a week. He set out a cash basket to recoup his
costs. His collection rate was about 95 percent; he
attributed the underpayment to oversight. 

In 1984, when his research institute fell under new
management, he took a look at his career and grimaced. ''I
was sick of every aspect of the whole thing,'' he says. ''I
was discouraged. I was tired of chasing contracts. So I
said to management: 'I'm getting out of this. I'm going to
sell bagels.''' 

His economist friends thought he had lost his mind. They
made oblique remarks (and some not so oblique) about ''a
terrible waste of talent.'' But his wife supported his
decision. They had retired their mortgage; the last of
their three children was finishing college. Driving around
the office parks that encircle Washington, he solicited
customers with a simple pitch: early in the morning, he
would deliver some bagels and a cash basket to a company's
snack room; he would return before lunch to pick up the
money and the leftovers. It was an honor-system commerce
scheme, and it worked. Within a few years, he was
delivering 700 dozen bagels a week to 140 companies and
earning as much as he had ever made as a research analyst.
He had thrown off the shackles of cubicle life and made
himself happy. 

He had also -- quite without meaning to -- designed a
beautiful economic experiment. By measuring the money
collected against the bagels taken, he could tell, down to
the penny, just how honest his customers were. Did they
steal from him? If so, what were the characteristics of a
company that stole versus a company that did not? Under
what circumstances did people tend to steal more, or less? 

As it happens, his accidental study provides a window onto
a subject that has long stymied academics: white-collar
crime. (Yes, shorting the bagel man is white-collar crime,
writ however small.) Despite all the attention paid to
companies like Enron, academics know very little about the
practicalities of white-collar crime. The reason? There
aren't enough data. 

A key fact of white-collar crime is that we hear about only
the very slim fraction of people who are caught. Most
embezzlers lead quiet and theoretically happy lives;
employees who steal company property are rarely detected.
With street crime, meanwhile, that is not the case. A
mugging or a burglary or a murder is usually counted
whether or not the criminal is caught. A street crime has a
victim, who typically reports the crime to the police,
which generates data, which in turn generate thousands of
academic papers by criminologists, sociologists and
economists. But white-collar crime presents no obvious
victim. Whom, exactly, did the masters of Enron steal from?
And how can you measure something if you don't know to whom
it happened, or with what frequency, or in what magnitude? 

Paul F.'s bagel business was different. It did present a
victim. The victim was Paul F. 


It is 3:32 a.m., and Paul F. is barreling down a dark
Maryland road when he jams on the brakes and swears. ''I
forgot my hearing aids,'' he mutters. He throws the
gearshift into reverse and proceeds to drive backward
nearly as fast as he had been driving forward. 

He is 72, and his business is still thriving. (Thus his
request to mask his full name and his customers'
identities: he is wary of potential competitors poaching
his clients.) His daughter, son-in-law and one other
employee now make most of the deliveries. Today is a
Friday, which is the only day Paul F. still drives.
Semiretirement has left him more time to indulge his
economist self and tally his data. He now knows, for
instance, that in the past eight years he has delivered
1,375,103 bagels, of which 1,255,483 were eaten. (He has
also delivered 648,341 doughnuts, of which 608,438 were
eaten.) 

He knows a good deal about the payment rate, too. When he
first went into business, he expected 95 percent payment,
based on the experience at his own office. But just as
crime tends to be low on a street where a police car is
parked, the 95 percent rate was artificially high: Paul
F.'s presence had deterred theft. Not only that, but those
bagel eaters knew the provider and had feelings (presumably
good ones) about him. A broad swath of psychological and
economic research has argued that people will pay different
amounts for the same item depending on who is providing it.
The economist Richard Thaler, in his 1985 ''Beer on the
Beach'' study, showed that a thirsty sunbather would pay
$2.65 for a beer delivered from a resort hotel but only
$1.50 for the same beer if it came from a shabby grocery
store. 

In the real world, Paul F. learned to settle for less than
95 percent. Now he considers companies ''honest'' if the
payment is 90 percent or more. ''Averages between 80
percent and 90 percent are annoying but tolerable,'' he
says. ''Below 80 percent, we really have to grit our teeth
to continue.'' 

In recent years, he has seen two remarkable trends in
overall payment rates. The first was a long, slow decline
that began in 1992. ''All my friends say: 'Aha! Clinton!'''
Paul F. says. ''Although I must say that most of my friends
are conservative and inclined to see such things where
others might not.'' The second trend revealed in Paul F.'s
data was even starker. Entering the summer of 2001, the
overall payment rate had slipped to about 87 percent.
Immediately after Sept. 11, the rate spiked a full 2
percent and hasn't slipped much since. (If a 2 percent gain
in payment doesn't sound like much, think of it this way:
the nonpayment rate fell from 13 percent to 11 percent,
which amounts to a 15 percent decline in theft.) Because
many of Paul F.'s customers are affiliated with national
security, there may be a patriotic element to this 9/11
effect. Or it may represent a more general surge in
empathy. Whatever the reason, Paul F. was grateful for the
boost. He expends a great deal of energy hectoring his
low-paying customers, often in the form of a typewritten
note. ''The cost of bagels has gone up dramatically since
the beginning of the year,'' reads one. ''Unfortunately,
the number of bagels and doughnuts that disappear without
being paid for has also gone up. Don't let that continue. I
don't imagine that you would teach your children to cheat,
so why do it yourselves?'' 

He is impatient and cantankerous but in sum agreeable.
Dressed in jeans and sneakers, with busy eyes and a wavy
fringe of gray hair, he awoke this Friday at 3 a.m. Working
out of his garage, he first loaded 50 cardboard trays of
doughnuts -- a local bakery delivered them overnight --
into the back of his van. He drives an unmarked white Ford
E-150 rigged with a bagel-warming compartment. (The van was
never stopped during the D.C. sniper attacks, but Paul F.'s
tendency to park at the curb caused problems in the near
aftermath of 9/11. One customer left a note saying:
''Please park in a parking space. You are freaking a lot of
people out.'') 

After the doughnuts, Paul F. loaded two dozen money boxes,
which he made himself out of plywood. A money slot is cut
into the top. When he started out, he left behind an open
basket for the cash, but too often the money vanished. Then
he tried a coffee can with a slot in its plastic lid, which
also proved too tempting. The wooden box has worked well.
Each year he drops off about 7,000 boxes and loses, on
average, just one to theft. This is an intriguing
statistic: the same people who routinely steal more than 10
percent of his bagels almost never stoop to stealing his
money box -- a tribute to the nuanced social calculus of
theft. From Paul F.'s perspective, an office worker who
eats a bagel without paying is committing a crime; the
office worker apparently doesn't think so. This distinction
probably has less to do with the admittedly small amount of
money involved than with the context of the ''crime.'' (The
same office worker who fails to pay for his bagel might
also help himself to a long slurp of soda while he's
filling a glass in a self-serve restaurant, but it is
extremely unlikely that he will leave the restaurant
without paying.) 

After retrieving his hearing aids, he heads for the bagel
shop that provides him with roughly 50 dozen bagels, in six
flavors, every day. He drives nearly 80 m.p.h. along empty
highways and discusses what he has learned about honesty.
He is leery of disparaging individual companies or even
most industries, for fear it will hurt his business. But he
will say that telecom companies have robbed him blind, and
another bagel-delivery man found that law firms aren't
worth the trouble. He also says he believes that employees
further up the corporate ladder cheat more than those down
below. He reached this conclusion in part after delivering
for years to one company spread out over three floors -- an
executive floor on top and two lower floors with sales,
service and administrative employees. Maybe, he says, the
executives stole bagels out of a sense of entitlement. (Or
maybe cheating is how they got to be executives.) His
biggest surprise? ''I had idly assumed that in places where
security clearance was required for an individual to have a
job, the employees would be more honest than elsewhere.
That hasn't turned out to be true.'' 

Since he started delivering bagels, Paul F. has kept
rigorous data -- which, when run through a computer and
measured against external factors ranging from the local
weather to the unemployment rate, can tell some interesting
stories. Other conclusions, meanwhile, are purely
intuitive, based on Paul F.'s 20-year exposure to bagel
behavior. 

He has identified two great overriding predictors of a
company's honesty: morale and size. Paul F. has noted a
strong correlation between high payment rates and an office
where people seem to like their boss and their work. (This
is one of his intuitive conclusions.) He also gleans a
higher payment rate from smaller offices. (This one is
firmly supported by the data.) An office with a few dozen
employees generally outpays by 3 percent to 5 percent an
office with a few hundred employees. This may seem
counterintuitive: in a bigger office, a bigger crowd is
bound to convene around the bagel table -- providing more
witnesses to make sure you drop your money in the box.
(Paul F. currently charges $1 for a bagel and 50 cents for
a doughnut.) But in the big-office/small-office comparison,
bagel crime seems to mirror street crime. There is far less
crime per capita in rural areas than in cities, in large
part because a rural criminal is more likely to be known
(and therefore caught). Also, a rural community tends to
exert greater social incentives against crime, the main one
being shame. 

The bagel data also show a correlation between payment rate
and the local rate of unemployment. Intuition might have
argued that these two factors would be negatively
correlated -- that is, when unemployment is low (and the
economy is good), people would tend to be freer with their
cash. ''But I found that as the unemployment rate goes
down, dishonesty goes up,'' Paul F. says. ''My guess is
that a low rate of unemployment means that companies are
having to hire a lower class of employee.'' The data also
show that the payment rate does not change when he raises
bagel prices, though volume may temporarily fall. 

If the payment tendencies that Paul F. has noted so far
might be called macro trends, it is the micro trends --
those reflecting personal mood -- that are perhaps most
compelling. Weather, for instance, has a major effect on
the payment rate. Unseasonably pleasant weather inspires
people to pay a significantly higher rate. Unseasonably
cold weather, meanwhile, makes people cheat prolifically;
so does heavy rain and wind. But worst are the holidays.
The week of Christmas produces a 2 percent drop in payment
rates -- again, a 15 percent increase in theft, an effect
on the same order, in reverse, as 9/11. Thanksgiving is
nearly as bad; the week of Valentine's Day is also lousy,
as is the week straddling April 15. There are, however, a
few good holidays: July 4, Labor Day and Columbus Day. The
difference in the two sets of holidays? The low-cheating
holidays represent little more than an extra day off from
work. The high-cheating holidays are freighted with
miscellaneous anxieties and the high expectations of loved
ones. 

As considerable as these oscillations may be, the fact is
that a poorly paying office rarely turns into a well-paying
office, or vice versa. This has led Paul F. to believe in a
sobering sort of equilibrium: honest people are honest, and
cheaters will cheat regardless of the circumstance. ''One
time when I was cleaning up leftovers,'' he recalls, ''a
man came and took a doughnut while I was standing there,
and started to walk away without putting any money in the
box. I never challenge people about paying, but in that
place, despite notes and appeals to management, the payment
rate had been abysmal, and I was fed up. I said to the guy,
'Are you going to pay for that?' And he said, 'Oh, I left
my wallet in my car,' and started to put the doughnut back.
Now I knew, and he knew that I knew, that he hadn't left
his wallet in the car, but he was too cheap to pay 50 cents
for a doughnut and too brazen to say, 'Oh, I'm sorry, I
just wasn't thinking,' which is what anyone with half a
conscience would say.'' 


Once the van is loaded with fresh bagels, sorted by the
dozen into white paper bags that Paul F. had earlier
labeled with customers' names, he begins his rounds. It is
5:02 a.m. The first stop is an office building in northern
Virginia. His routine is nearly always the same. He grabs
one of the magnetic ID cards dangling from his rearview
mirror, hangs it from his neck, jumps around to the side of
the van, loads up a cardboard box with bagels, doughnuts
and a cash box and practically sprints inside. In the snack
room, he dumps the bagels from their bag, folds back the
top of the doughnut tray, plunks his money box on the table
and hustles out. Then back into the van, which he drives
maniacally even from one office-park cul-de-sac to the
next. (When a woman in a Lexus tarries at the entrance to
one parking lot, he calls her terrible names.) Another
office building, another ID card, another delivery. You can
tell the defense contractors by the art on the walls:
achingly sensual black-and-white photographs of missiles
and armored personnel carriers. Some of the break rooms
have vending machines whose offerings -- ''Spicy Chicken
Biscuit'' and ''Chopped Beefsteak Sandwich'' -- look so
vile that the simple appeal of a warm, fresh bagel becomes
all the more apparent. 

By 9 a.m., he has made all his deliveries. At 11, he will
start picking up leftovers and the money boxes. Until then,
it is time for his weekly Friday morning breakfast with a
dozen of his old economist friends. They meet in the
ground-floor cafeteria of the office building where one of
them now works. They swap gossip, tax tips, Ziploc bags of
pipe tobacco. 

These are some of the same friends who 20 years ago told
Paul F. that his bagel business would never work. People
cannot be trusted, they said. Their conversation this
morning continues along those lines. One man cites a story
he heard about a toll-collector strike in England. During
the strike, drivers were asked simply to put their money
into a box. As it turned out, the government collected more
toll money during the strike -- which suggests that the
drivers were at least fairly honest, but also that the toll
collectors had been skimming like mad. Another economist at
the table is now a tax preparer. He ticks off a long list
of common tax evasions his clients try to use -- lying
about the cost basis of stocks is perhaps the favorite --
and reminds the others that the United States tax code is,
like Paul F.'s bagel business, largely built on an honor
system. 

Amid all the talk of cheating, lying and scamming, Paul F.
takes the floor to declare his faith in humankind. ''You
guys know the story about the Ring of Gyges, right?'' he
says. 

A man named Gyges, he explains, came upon a cave and,
inside it, a skeleton wearing a ring. When Gyges put on the
ring, he found that it made him invisible. Now he was faced
with a choice: would he use his invisibility for good or
evil? The story comes from Plato's ''Republic.'' It was
told by a student named Glaucon, in challenge to a Socratic
teaching about honesty and justice. ''Socrates was arguing
against the idea that people will be dishonest if given the
chance,'' Paul F. says. ''His point was that people are
good, even without enforcement.'' 

But Paul F. doesn't tell his friends how Glaucon's story
ends. Gyges actually did woeful things once he got the ring
-- seduced the queen, murdered the king and so on. The
story posed a moral question: could any man resist the
temptation of evil if he knew his acts could not be
witnessed? Glaucon seemed to think the answer was no. But
Paul F. sides with Socrates -- for he knows that the
answer, at least 89 percent of the time, is yes. 




Stephen J. Dubner, an author and journalist in New York
City, and Steven D. Levitt, an economist at the University
of Chicago, are writing a book about the economics of baby
names, cheating, crack dealing and real estate. 

http://www.nytimes.com/2004/06/06/magazine/06BAGEL.html?ex=1087691338&ei=1&en=c5bb8225192e01e1


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