Why People Refuse Free Money

free moneyFor those that have an interest in why we make the financial decisions that we do, an interesting article on neuro-economics was recently published in the TimesOnline that is definitely worth a read:

Imagine that you are sitting next to a complete stranger who has been given £10 to share between the two of you. He must choose how much to keep for himself and how much to give to you.

He can be as selfish or as generous as he likes, with one proviso: if you refuse his offer, neither of you gets any money at all. What would it take for you to turn him down?

According to standard economic theory, you should cheerfully accept anything you are given. People are assumed to be motivated chiefly by rational self-interest, and refusing any offer, however low, is tantamount to cutting off your nose to spite your face.

Yet in practice derisory offers are declined all the time. Indeed, if the sum is less than £2.50, four out of five of us tell the selfish so-and-so to get lost. We get so angry at his deliberate unfairness that we are prepared to incur a cost to ourselves, purely to punish him…

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3 Responses to Why People Refuse Free Money

  1. Steve Torso says:

    The psychological aspects around money is always interesting. I think the Amaranth example recently would make a great study.

  2. junger says:

    I’m not sure that this makes much sense … it seems much more likely that the money would be declined because the person does not want to feel in debt to the moneygiver.

    “Here’s some money. Now you have to do X.”

    It’s just a weird situation, especially with a person you don’t know.

  3. MAtthew Maggy says:

    I’d take whatever he gave me, then punch him in the face for being an ______hole

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