Should More Companies Use the Honor System?

(Hannah Zipko- Period 7)

When people are trusted, they tend to react positively.  Trust is a strong motivator; therefore, if you can make someone feel trusted, they will be in a generous mood and more likely to give. Many companies throughout the United States have proven this theory to be true with their honor system payment methods. When customers are trusted to pay what they owe, they tend to pay that and even more. Therefore, should more companies turn to the honor system, or will this ultimately lead to theft and a loss of profit?

In “Schoolteachers and Sumo Wrestlers” by Stephen J. Dubner and Steven Levitt, the authors tell a story about Paul Feldman, an ex-director at the Center for Naval Analyses. While he worked at the Center of Naval Analyses, Paul started to bring bagels to work every Friday for his employees. He put a box out and trusted that people would pay him back the recommended amount. When he started to realize this system of payment had a ninety-five percent collection rate, Paul left his job in order to pursue a bagel company using the honor system. He advertised his company to many businesses in the Washington D.C. area, and before long he was delivering about 8,400 bagels a week to 140 different businesses. He would deliver the bagels in the morning and pick up his proceeds and the extra product by lunch time. The best part of his new business was that he was making more than he ever had as a research analyst. Due to his background as an analyst, he kept extensive data on his earnings. He was able to see how many people stole based on his earnings and the amount of bagels taken each day. Of course, the payment rate at these new businesses was not as high as the rate at Paul’s own office. People knew Paul on a personal level and that had prevented people to steal from him. He learned that a truthful company’s payment rate was about ninety percent. If any office had a payment rate less than eighty percent, he had to leave a note asking the costumers to be more honorable. He found that many different factors changed whether or not a costumer was honest. For example, weather, the size of a company, and holidays all affected whether or not costumers would pay. Despite a few thieves, Paul was able to run a successful business because instead of hiring employees to supervise the bagel stations, he trusted his costumers and was able to deliver to more offices.[1]

Many other businesses have been constructed similar to Paul Feldman’s company. At the Swanton Family Berry Farm, the founder Jim Cochran modeled his business style after a donut shop he used to visit as a college student in Santa Cruz, California. He used to love how the owner would make donuts in the back of the shop while the costumers served themselves, the cash register wide-open. When he started his own business, he wanted it to have the same nostalgic, small-town feeling that the donut shop had. Another benefit is that he is able to tend his crops rather than working the register. He says that, like he used to do at the donut shop, many customers tend to give more money than they owe.[2] Another woman, Barb Clerici, owns a farm stand at her family’s ranch and sells fresh produce and eggs via the honor system. She says that, “a lot of people leave more than [they] request, along with notes that say they really value what [they’re] doing.[3]” She believes trust should be a two-way street. Her costumers trust that her produce is healthy and safe; therefore, she should trust her costumers as well. [4] Finally, David and Kimberly Brekke own a coffee shop that requires no baristas due to their self-service and self-payment methods. In his own coffee business, David Brekke has found that “people are fifteen percent more generous than thieving.” A sign hangs in the shop that reads, “Round down and give yourself a break, or round up and help us stay in business.” Kimberly spends her day baking pastries while David is able to work as a business consultant after opening the shop for the day. [5]

 

Although the honor system seems like a great idea, there are a few potential negatives to the unique payment method. Michael Cunningham has found that “about 25 percent of people are consistently honest in the way they behave, 25 percent mostly honest, 25 percent are dishonest, and 25 percent are erratic. [6]” Although the majority of people are trustworthy and sometimes overly generous, there will still always be someone who will steal a company’s proceeds.  This idea is very true; however, the amount of extra money made by using the honor system needs to be accounted for in this argument. Although someone might steal the money once a week, the owner still might be making more money by using the honor system. For example, pretend a business made $50,000 per day before using the honor system. Once they began using the honor system they make $65,000 per day due to the increased trust between their customers. If one costumer stole all the money the business made in one day once a week, the company would still be making $40,000 more per week. Another argument is that this method of business hurts our economy because it takes away a job that someone could have.[7] People believe that if we encourage more business owners to use this type of system, the unemployment rate will increase. However, this is false because although there would be a greater increase in unemployment for cash register clerks, there would also be a greater increase in employment in another field. By making an employee for a job unnecessary, you allow that employee to find a new job serving a community or business that truly needs to hire a new worker. This will allow growth in other areas of our economy and can actually lead to growth in GDP.

 

Researchers and psychologists have found many reasons why the honor system is so successful. Michael Cunningham, a social psychologist at the University of Louisville believes that costumers are more likely to be generous when they are trusted because when a business owner provides a costumer with a product they want and trusts that the costumer will pay them, it makes the costumer happy in two ways.[8] The costumer gets what they want and they also get a good feeling about themselves. The costumer feels good about the world and place that they are in and views the business owner as a contributor to that good. The costumer wants to reward the owner and pays more than he has too. In other words, Michael Cunningham believes that, “Sometimes people are more generous because they appreciate the compliment of the trust.[9]” Paul Zak, and economist and brain researcher at Claremont Graduate University, believes that there is a connection between “that burst of “good feeling” that most of us get when we trust and are trusted to the brain’s natural release of the peptide oxytocin, the same quick-acting neuropeptide found to contribute to bonding and attachment between a mom and her newborn, or to affection between mates.[10]” He is working with a group of colleagues to further explore this idea. Overall, people tend to tip more when they are trusted because they feel a sense of community and feel like they are a part of something very special. [11]

Though the honor system is not crime-proof, it has proven to have many benefits. The system can provide an increased trust between an owner and his costumers which can lead to an increase in tips. Also, by not having to man the register, employees are able to work on more important tasks or owners are even able to work another job in order to increase their income. Honor system businesses can also help the country’s GDP by allowing well-equipped workers to focus their talents on other jobs. Although it may be unrealistic to have most businesses use the honor system, many businesses would definitely benefit from styling their company as an honor system business.

[1] Dubner, Stephen, and Steven Levitt. “Freakonomics.” In How to Find Happiness Without a Free Lunch. Dallas, Texas: Bernardo Aparicio, 2015.

[2] Franklin, Deborah. “The Psychology Of The Honor System At The Farm Stand.” NPR. June 11, 2012. Accessed December 8, 2015.

[3] Franklin, Deborah.

[4] Franklin, Deborah.

[5] McColl, Sarah. “At This Coffee Shop, It Pays More to Be Honest.” TakePart. August 28, 2014. Accessed December 9, 2015.

[6] Franklin, Deborah.

[7] McColl, Sarah.

[8] McColl, Sarah.

[9] Franklin, Deborah.

[10] Franklin, Deborah.

[11] Franklin, Deborah.

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