Monday, March 14, 2016

The Bagel story and Dishonesty

Paul Feldman, an Economist, was a Director research at a firm. He used to love Bagels and carried a few extra for his colleagues at work. Soon employees from the neighboring floors heard about it and they would want some too. So, he started bringing more bagels to work and would leave out a cash basket to recover his costs. His collection rate was about 95%.

After a point of time people would refer to him as the Bagel man instead of his fancy Director Research position.

Soon he quit his job and decided to get into the Bagel business. He drove around offices delivering Bagels early in the morning and would leave a cash basket in the company's snack room. He would return around Lunch and pick up the money and leftovers. It was an honor system. Within a few years he was delivering around 10,000 bagels a week to 140 offices.

He also inadvertently designed a beautiful economic experiment. By measuring the amount of money collected he could tell how honest his customers were. On the basis of this he could characterize a company and predict White Collar crime.

Some of his insights were
  • If payments is 90% or more then the company is honest
  • After Sept 11 terror attack, the collection rate iAs mproved by 2%. It may represent a surge in empathy.
  • Initially he left open cash baskets, but money would get stolen. Later he setup wooden money boxes with a slot. Of the 7000 cash boxes only one box got stolen.
  • People who steal his bagels never stoop to steal his money.
  • Telecom companies have robbed him
  • It also isn't worth the effort delivering to Law firms
  • Employees further up the corporate ladder cheat more than those down below.
  • Places where security clearance was required for an individual to have a job weren't that honest.
  • In places where people like their bosses, payment rate is high
  • Smaller offices with a few dozen employees have high payment rates than offices with a few hundred employees.
  • As unemployment rate goes down dishonesty goes up.
  • Payment rate doesn't change with increase in Bagel prices.
  • Unreasonably Pleasant weather makes people pay a higher rate.
  • Unseasonably cold weather makes people cheat
  • Holidays like Christmas week produces a 2 percent drop in payment.

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