From the July 2006 issue of Investment Advisor • Subscribe!

July 1, 2006

The Silver Lining

Freakonomics research isn't all about revealing the darker side of human behavior. Consider this analysis of Paul Feldman's bagel business. Feldman was an economist in Washington, DC, who got a job analyzing weapons costs. As a senior manager, when his group won a large contract, he'd bring them bagels.

Then he started bringing bagels and cream cheese on Fridays. When word spread throughout the building, he ended up bringing in 15 dozen bagels a week. To cover his costs, he put out a basket with the price per bagel. As an economist, he tracked his costs and "revenues," finding that 95% of the people who took bagels paid for them.

After 20 years, management of his institute changed, and Feldman thought about a career change. He decided to sell bagels. His economist friends thought he was nuts, but he had an idea for a business: early in the morning, he left bagels and cream cheese at companies in office parks around Washington, along with a small box with slot and a sign asking people to pay $1 per bagel on the honor system. Within a few years, Feldman was delivering 8,400 bagels a week to 140 companies and making as much as he did as an economist.

He also kept meticulous records, collecting some interesting data. After trying baskets and coffee cans which proved too tempting, he found while some people might steal a bagel, they almost never stole the money box; out of 7,000 boxes only one each year went missing. He also found that small businesses had payment rates 3% to 5% higher than large businesses, and that offices where employees liked their boss and their work tended to be more honest. In buildings with executive floors, the data showed that executives tend to steal more bagels.

Reprints Discuss this story
This is where the comments go.