Radiohead experiment concluded

Thanks to all who participated in the "bidding" for my book on behalf of Save the Children. I have received 146 valid requests, 31 of which came from developing nations. The median contribution was $15, and the mean was $21 (exactly my marginal cost!).  The maximum contribution was $145, with a few readers contributing $100 or more.   

Here is what the entire distribution of contributions looks like:

Only a minority of "bids" came at $0 (33 out of 146), which is perhaps not a total surprise. But interestingly, those with zero or low bids felt compelled to provide a justification (being a poor student being the most commonly offered one). But of course none was needed on purely rational grounds. Given the rules of the game, the surplus-maximizing thing to do from one's own perspective was to offer a contribution of $0. That's it.

(Unless of course you attach not even an epsilon value to the book, in which case you would not have bothered with putting in a bid at all. Come to think of it, given that I get about 3,000 hits a day, and 146 people responded, should I deduce that a whole lot of people found themselves in this category...? I am now depressed!)

By contrast, those who promised to contribute $20, $40, or even $100 for the book felt they had to provide a rational justification--lest I think less of them, I suppose. One reason for responding with a high bid was that offering nothing or a very small amount would be embarrassing. I would have names and addresses of the cheapskates, and who knows one day we may even meet. (Perhaps this is why many readers stayed away from the experiment even though they would be happy paying a few dollars for the book? Phew!)

An even more common justification for a high "bid" was that since the money is going to a charity, Save the Children, the contribution had to be positive, and perhaps even large. For example, one respondent wrote: 

Children's charities always get my $$$. ... I have a young daughter and therefore want a bright future for her, which in part means healthy and happy peers.

This is perhaps more dramatic than how most people put it, but it captures a very commonly expressed sentiment.  (This particular person chose to donate $50.) 

Well, the economist in me wants to say: stop, you got it wrong!  If you value charitable contributions, you should have already maxed out on them to the point where the marginal value (to you) of another dollar of contribution is exactly equal to the marginal cost. My book offer should not want you to make additional contributions. Regardless of the value you attach to charity, the rational thing to do is to offer $0, no more.  So you are in fact trying to rationalize what cannot be explained through rational behavior. 

But of course the real person in me says, great, we have more money going to Save the Children.  How much money? The random sample I have selected yields a total contribution to Save the Children of $411. This is of course way below what the contribution-maximizing selection would have yielded ($1242). But I do not want to change the rules ex post. Instead, what I will do is send additional copies of the book (beyond the 20 I have allocated to the lottery) to all those who put in "bids" of $100 or above. Winners will be hearing from me soon.   

Many of you said very nice things about my blog in your responses, which alone made the experiment worthwhile for me.

UPDATE: The New York TImes reports on my experiment.

Comments

[Linkt]

I wonder if this could be related to the 'youtube' phenomenon? In the sense that the rational thing to never upload anything to youtube. If you can upload it, you already have it, why upload?
A big difference seems that in order for youtube to work, a very, very, very low percentage of youtube viewers need to upload material, while a very high percentage of book buyers chose to pay more than 0.

[Azad Bali]

I guessed the Mean right! I should get the book! Thhphht!

[pc]

Dani,
where does the "contribution-maximizing selection" of $1242 come from?

Now, if your marginal cost is $21, why don't you send copies for all the bids above $21? Pay the cost of the book, and contribute the rest to the charity.

The readers who offered more than $21 will be happy to complete the transaction.

The charity will be happy to receive the contributions.

Your publisher will be happy to sell more coppies of the book (even if at a discounted price which, I assume still covers the marginal cost for them).

And you will receive a royalty.

It wouldn't be efficient to do so! Or am I missing something?

Disclaimer: I didn't put any bid, so I am not trying to get a copy for myself.

[ben]

I bid 0. Here's why:

In general, I believe in markets enough to not feel a moral obligation to pay more than the minimum price I can. There are exceptions to this rule- goods produced using child or prison labor for instance, but that kind of consideration isn't relevant here.

Another exception to the rule is tipping- I always tip in a restaurant, and thus pay more than the minium price, for two reasons. First, not doing so violates a social norm, which would embarass me. Second, I don't like to make other people feel sad or angry, and most servers would take it personally and feel bad if you left zero tip. So, I will pay more than the minimum price if it avoids a cost to me in terms of embarassing myself, or making someone else feel bad.

None of these exceptions apply here, though. First, there is no social norm in this situation, since it is so novel; thus, there is no cost in terms of embarassing myself. Second, I don't believe Dani Rodrik is going to be offended by my bid of zero- as an economist, he will understand why I am doing that and not take it personally. In fact, he might even feel better if I bid zero, because doing so to some extent validates economic theory!

By contrast, if a non-economist were doing this experiment (and I wanted their book) I would probably make a positive bid, since I imagine to do otherwise would make the author feel bad- I would be worried that a non-economist would take my bid as a statement that their work had no value, similar to the way a server would feel in a restaurant if I didn't tip them.

[Peter Schaeffer]

"Instead, what I will do is send additional copies of the book (beyond the 20 I have allocated to the lottery) to all those who put in "bids" of $100 or above."

Isn't that an ex post change in the rules?

[Dawson Lemus]

You should not feel depressed. Some of us were planning to buy it at a normal bookstore without the hassle of economic experimenting!!!

[RLM]

"If you value charitable contributions, you should have already maxed out on them to the point where the marginal value (to you) of another dollar of contribution is exactly equal to the marginal cost. My book offer should not want you to make additional contributions."

That statement seems to imply:
(1) a specific time constraint, and
(2) the assumption that people have donated all they can before the fall/winter holidays, meaning the other charity vultures got to them before you (!!), which is probably not the case.

Perhaps some people give to charity on an annual basis, and may have maxed out, but I am willing to guess that many are less sophisticated, and in fact, never really max out. Stir their emotions next month and they may find a reason to give up the equivalent of 10 songs from iTunes.

Take this point to the extreme and you find disaster relief donations, where people dig deep against seemingly all rational calculations because a new marginal benefit has emerged. If Katrina is extreme, perhaps your books is on the other (still worthy!) end of the spectrum.

[PK]

A comment on the following analysis:

one respondent wrote:
Children's charities always get my $$$. ... I have a young daughter and therefore want a bright future for her, which in part means healthy and happy peers.

This is perhaps more dramatic than how most people put it, but it captures a very commonly expressed sentiment. (This particular person chose to donate $50.)

Well, the economist in me wants to say: stop, you got it wrong! If you value charitable contributions, you should have already maxed out on them to the point where the marginal value (to you) of another dollar of contribution is exactly equal to the marginal cost. My book offer should not want you to make additional contributions. Regardless of the value you attach to charity, the rational thing to do is to offer $0, no more. So you are in fact trying to rationalize what cannot be explained through rational behavior........

Question:

Shouldnt the marginal value of another dollar of charity increase since you are subsidising charity (bundling it with a book)? This is the same effect that tax rebates have on charitable contributions - reducing the marginal cost of contribution.

[Dani Rodrik]

PK --

No. There is no bundling here (only the appearance thereof). Your probability of getting the book is the same even if you contribute nothing to charity.

[Todd_NYC]

"...If you value charitable contributions, you should have already maxed out on them to the point where the marginal value (to you) of another dollar of contribution is exactly equal to the marginal cost. My book offer should not want you to make additional contributions."

Perhaps, but say I know in advance how much to fund my charitable contributions such that I reach marginal cost? Why then shouldn't I wait to contribute until I can combine that contribution with a perk?

So, I may want to fund childrens' charities, but here's an opportunity to do it and get something in return. More utility for me!

[Dani Rodrik]

Todd_NYC --

Please read my response to PK.

[Hazel]

Depressed? Because only 146 of 3,000 readers actually bid for your book? Why should I? I don't want it. I read your blog because I enjoy reading what you have to say -- I am not an economist nor am I a student of economics. Cheer up!

[DGG]

I bid $0. Why should I bid more if I can enter the lottery for $0? In the absence of the lottery, I would go to the bookstore and buy the book for its retail price of $30. As for the charity, I already exhausted my charity budget. Giving more would be suboptimal for me. I am a maximizer.

[notsneaky]

"Unless of course you attach not even an epsilon value to the book, in which case you would not have bothered with putting in a bid at all. Come to think of it, given that I get about 3,000 hits a day, and 146 people responded, should I deduce that a whole lot of people found themselves in this category...? I am now depressed!"

There's a perfectly good reason why many readers attach a zero value to a MARGINAL COPY of your book. They've reached their bliss point with the first six or seven copies they already own. Well, maybe just with the first copy.

[anon]

I did not provide reasons for my bid, so here are some. I bid relatively high because I spend a fortune on books I don't read anyway and because I don't donate much to charity. Essentially my bid was a bundled purchase: something I buy a lot of (the book) together with something I buy little of (moral gratification).

I will read Dani's book! (I swear)

[paine]

"Many of you said very nice things about my blog in your responses, which alone made the experiment worthwhile for me "

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[Jason]

I bid $25. The reasoning was:

$21 to offset costs of production
$4 to reward the author for what I consider something worthwhile

Honestly, if Dani wants to veer into behavioral economics, he would do well to elicit our rationalizations of our bids, survey our incomes, educational backgrounds and political beliefs, and reason out why the bids didn't match his expected model...

...though that may be a bit too empirical for some folks :)

[pat toche]

I can't say enough good about this blog, it's great, thanks very much!

One thing that crossed my mind about this experiment is, you cannot identify the "book purchase" portion of the bid versus the "charity donation" part.

...except for zero bids, I guess

[Carlos]

I wish I had known about the bid, unfortunately I only read the NYTimes today and found out about it. I definitely would have bid $0.

At least now I know about this blog site; I love positive externalities.

[SDB]

I guess the thing which interested me the most in your experiment was that the average (in some sense) bid (or perhaps the median bid) for your book came in at about the same price as one would pay in a bookstore. Does this mean:

* We tend to pay the prices for good which we have come to expect from prices in the commerical world?

* Or do the commercial world prices reflect what we "feel" are the correct values of things? (And the range of $20 -- $30 is what we expect to pay for a book)?

The NYT article led me to believe that on average, people paid $8 for the the Radiohead CD. Again, this is about the price of a bargain-bin CD. Maybe we have a gut-feeling about what things are worth?

[Mehmet]

Prof. Rodrik,
I came across your blog today, through NY Times. I would like to share this piece with a few friends of mine, especially through Facebook, but I do not see that option. I am wondering if it is possible to share your blog entries through Facebook, like it is over at NY Times.

[Mehmet]

Prof. Rodrik,
I came across your blog today, through NY Times. I would like to share this piece with a few friends of mine, especially through Facebook, but I do not see that option. I am wondering if it is possible to share your blog entries through Facebook, like it is over at NY Times.

[Mehmet]

Prof. Rodrik,
I came across your blog today, through NY Times. I would like to share this piece with a few friends of mine, especially through Facebook, but I do not see that option. I am wondering if it is possible to share your blog entries through Facebook, like it is over at NY Times.

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