Tuesday, July 16, 2013

How Learning about Marginal Utility Made One Person More Generous

When teaching economics, a standard concern from many students, whether they express it explicitly or not, is that economics only glorifies selfishness. But of course, economic analysis can be used in the service of gentler sentiments as well. Here are some reflections from non-economist but gifted essayist A.J. Jacobs, in his 2004 book The Know-It-All: One Man's Humble Quest to Become the Smartest Person in the World.  His method was to read the Encyclopedia Britannica--and then to write a charming book about the experience. Here's how reading about "economics" changed his behavior toward greater generosity:

"Personally, I've never been a cheapskate. I'm not a free spender, mind you, but I do buy decent clothes from mid-level chains like Banana Republic, would probably pay a doctor to save my son's limbs if the kid asked nicely, and unless the waiter spills cappuccino on my lap or tells me  I look like Lyle Lovett, have always given a respectable, 15 percent tip.

"I'd say I'm right in the middle of the stinginess scale. Or I was. The Britannica has nudged me to be ever so slightly less cheap. For the last few weeks, I've started tipping more, in the range of 20 to 25 percent. That's one clear-cut--if very small--way the Britannica has changed me, probably for the better. I noted the change after reading about marginal utility theory in the economics section. I probably learned all about marginal utility theory in college, but it didn't sink in, just as most things in college didn't sink in, unless  they involved new and more efficient ways to get hammered.

"For those foggy on their microeconomics: marginal utility theory says that consumers differ in the amount of satisfaction they derive from each unit of a commodity. When a man with only seven slices of bread gets offered another slice, that one extra slice gives him a lot of happiness. But if a man has a couple of hundred slices of bread--enough bread to keep him waist-deep in sandwiches for months--another slice of bread won't send his spirits soaring.

"In short, money means more to those who don't have it. I know this verges on common sense. But there's something about seeing it in the Britannica, expressed as a rock-hard economic law, that makes it more powerful to me. So, for instance, today, when I took a cab home in the snow, even though the driver tested my nerves by spending the entire time telling me about his favorite Dunkin' Donuts flavors (he's partial to crullers), I gave him $6 instead of the usual $5. I probably have more money than he does in my bank account, so the dollar will provide him with greater happiness than it would me. A simple, logical conclusion. I know it smacks of noblesse oblige, of extreme condescension. But I don't care--it make me feel better. Of course, the right thing to do would be to give away 90 percent of my bank account, but what can I do? I like my Banana Republic khakis and my cappuccinos."