The band Radiohead is offering their new album online. The twist: They're asking for tips, not payment, and depending on the generosity of their fans. In today's New York Times, Eduardo Porter reports that "a third of the first million or so downloads paid nothing, according to a British survey. But many paid more than $20. The average price was about $8. That is, people paid for something they could get for free." He continues:
"Since we economists don't understand tipping, we can't really say whether this new scheme will work," Greg Mankiw, a Harvard professor of economics, said in an entry on his blog. He is not the only economist who is fascinated by the phenomenon. His Harvard colleague, Dani Rodrik, asked his blog readers, "Has Radiohead gone bonkers?" He concluded, "Not at all." Radiohead will make money. But those who are paying for the download may truly be nuts.
One could argue that rationality isn't everything. Radiohead fans might just be altruistic beings who out of the goodness of their hearts would like to give some money to a spectacularly successful and probably stinking rich rock band. But somehow, that doesn't work as an explanation.
Or does it? Some economists suspect that what is going on is that people get a kick from the act of giving the band money for the album rather than taking it for free. It could take many forms, like pleasure at being able to bypass the record labels, which many see as only slightly worse than the military-industrial complex. It could come from the notion that the $8 helps keep Radiohead in business. Or it could make fans feel that they are helping create a new art form — or a new economy. People who study philanthropy call it the "warm glow" that comes from doing something that we, and others, believe to be good.
Mr. Rodrik tested some of this with an experiment of his own. He offered his blog readers the opportunity to get a copy of his new book on globalization and economic growth for whatever price they wanted to pay, and said proceeds would go to the charity Save the Children.
The response suggested that "warm glow" is in demand. A third of the people offered nothing. But the average bid was $21, and he received bids for as much as $145, more than four times the list price. The most interesting part was to hear bidders explain themselves. Those who bid little felt it necessary to provide a reason, like being a poor student. But those who bid high justified it too: many said they liked saving children.
Economics may not understand altruism, but psychology appears to have a reasonably good grip on the topic–see, for example, Dacher Kelter's essay "The Compassionate Instinct" in the very first issue of Greater Good magazine, which is perhaps the closest thing to a manifesto that we have published. It's interesting to think about translating these ideas into the realm of commerce: What if our economy was organized around giving instead of taking?
Also: Constance Ahrons and I appeared this morning on the KPFA show "Sunday with Peter Laufer," to talk about the "21st Century Family" issue of Greater Good. You can listen to it here.