Thursday, December 22, 2011

Calculating Generosity and Old Refrigerators

Generous People Are Just Being Smart

In economics there are a number of thresholds beyond which the behavior of rationally self-interested agents changes, based on subsistence or biological set-points of humans. For example, there are diminishing returns in happiness to increasing wealth, once basic needs are met (although this point has become contentious of late).

We would also expect cultural values to change in wealthy societies. In a poor and unpredictable society, possessions are few, frequently used, and critical for economic survival. Consequently people are highly risk averse and discount the future, and don't let their few things out of their sight. In a wealthy and predictable society, there may be more value to be had from your possessions; specifically, social capital from allowing others to use them. That is, generous people are really just smart. (That doesn't diminish their niceness at all.)

A qualitative equation for sharing possession would look like this:


social capital for the future,
+ pleasure from seeing friends benefit,
+ status from interacting with more powerful person or signaling wealth by helping a lesser person

- utility lost while possession is loaned out,
- value of possession relative to overall wealth,
- chance of the item getting damaged, lost or stolen (if an object is changing hands)

- If you have powerful, rich friends or people who have access to goods and services you don't, the ROI is big, and this favors your being generous with them. Note that social capital is not just directly an IOU, but a relationship that's been built or reinforced. (See Benjamin Franklin's anecdotal trick to turn an enemy into a friend this way.)

- If you're a nice person and gain utility from seeing people happy, that favors your being generous.

- The more people know about your generosity, the better (if you gain status based on the person you loaned something to, or by helping those less fortunate.)

- If you use the item a lot, that counts against being generous with it.

- If the item is valuable, and/or if there's a significant chance of its not coming back in one piece, or you have poor information to evaluate those chances (i.e. you don't know the person well), that counts against being generous. As the value of the item increases relative to the value of your wealth, that counts against being generous.

The social capital built by economic interactions has been a major part of trade transactions for most of our history; most people who traded knew each other over the long-term until the last century or two. This may explain why in disparate places in the developing world, refusal to barter is taken by merchants as an insult - which would be very, very strange if they were only maximizing money. The bartering process extends the social contact. In my anecdotal experience, marketeers in these places in the world have caught on and realize that bartering is a tradition they don't mind parting with.

A Theory of Refrigerators In Front Yards

Conversely, hoarders may be irrational or stupid, believing they can gain value from objects that they store, often with the intent to fix or restore them. The type of hoarder I'm talking about here is a hoarder of things (machines, tools and objects, rather than paper records or sentimental objects). The hoarding of machines is much more often seen in males, especially those which plan to fix or amend them eventually.

Why do object-hoarders keep their objects for so long? We might assume that their economic "problem-solving" is intact but their estimations of some of the variables plugged into the decision process are off:


estimation of mark-up you can get, i.e. value added to purchase price by labor

minus (inconvenience of storing it)*(belief how fast it will move)

That is to say:

- The clutter doesn't motivate them sufficiently (this is more likely the case on a large plot of rural land than in a city apartment)
- They have an unrealistic idea of how soon a buyer might appear
- They have an unrealistic valuation of the objects, in part because of an unrealistic valuation of their own skills and attention to repair them in the future


pollycharlie said...

Apparently works in relationship, too.

Michael Caton said...

I'm not at all comfortable with the implications of that research.