$20 Bills on the Sidewalk

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

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~ by danplechaty on September 28, 2010.

2 Responses to “$20 Bills on the Sidewalk”

  1. I think this is also an interesting thought experiment to think about the difference in returns to marginal income. While everyone’s are clearly diminishing, everyones’ returns do not diminish equally. The argument is commonly made that redistributing wealth yields a net increase in utility to society because of diminishing returns to increasing income. In your scenario, some people would probably only pick up money for a couple dozen hours a year, but on the other hand there would likely be a few people who would pick up money 10 hours a day almost every day and accumulate around say a billion dollars so that they could buy the Yankees or achieve some other goal that required hundreds of millions of dollars like trying to end world hunger. Another interesting thing to think about is that even though people don’t get much happier after they have $75,000 a year in income, most people still want to earn more money than that and therefore I would guess the average stopping point would be well in excess of that number.

  2. I certainly agree that most people would pick up much more than $75000 a year. In the happiness literature, most people who made $75000 were clearly working more than a day or two a year. How we spend the rest of our time has a lot to do with how happy we are, and with the opportunity to easily make a ton of money it would be hard not to feel obligated to do so to try and solve various social problems.

    I think its also important to think on whether or not happiness is the best measure of utility more broadly. People often say that their goal is to be happy, but its pretty clear that much of what we do isn’t directly related to making ourselves or others happy. Owning the Yankees might not make one happy in a traditional sense, but its certainly appealing to a large subset of people.

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