Once someone told me that Bill Gates earns money more quickly than someone would if they were to pick up a $20 bill on the sidewalk. Now, I have no idea whether or not it is true, or what assumptions they made to get to this figure (I’m guessing that it was true, although now Gates has been giving away money much more quickly than he makes it). Regardless, I think that it could form the basis of a really cool thought experiment. What would you do if you had the option to pick $20 bills off of the ground all day long?
I’m guessing that most people would start by frantically picking up $20 bills, especially if they were uncertain about how long this opportunity would last. After a while, they would have to stop for food, water and sleep, but after taking care of these necessities they would be back at picking money off of the ground. A couple of days later, they may want to pay for a back massage, and they would start to catch up on sleep realizing that the endless supply of $20 bills would still be there in the morning.
The interesting thing, however, is that there would clearly be a point at which they would severely limit the amount of time they spend picking up money, or even at some point they might stop entirely for long periods of time. This illustrates nicely the concept of the diminishing marginal returns to income. No one wants to spend the rest of their life picking up money; its what we spend it on that we value. A rational person might, in fact, only pick up money for a day or two a year. A lot of happiness research has shown that people don’t seem to get any happier from increases in income beyond $75,000 a year; up until that point additional money helps to relieve financial stress and buy all of the necessities we need, but anything more doesn’t seem to do very much. If you assume that on average you would spend five seconds picking up each bill, you could make 75 grand in just over five hours!
It would be interesting to see what people would actually do in this kind of experiment, although I doubt anyone would have the budget to finance it. I would guess that most people wouldn’t stop at $75000 (especially if they have debt to pay off or other specific financial goals, such as buying a house or a car). Lets also assume that any inflationary effects are negligible. How long do you think it would take most people to stop?
-dp