Hobo Economicus
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B R I E F S
I N E C O N O M I C P O L I C Y
M ay 31, 2023 N u m b e r 334
Hobo Economicus
B y P e t e r T. L e e s o n , G e o rg e M a s o n U n i v e rs i t y ; R. A ugu st H a r dy , S w e e t B r i a r
C o ll e g e ; a n d P ao l a A. S ua r e z , S e to n H a ll U n i v e rs i t y
“T
here is no more important proposi- they do—even in financial markets, where we might expect
tion in economic theory,” economist rationality to abound.
George Stigler observed, “than that, Apparent violations of the equalization principle in finan-
under competition, the rate of return cial markets are compelling because financial markets have
on investment tends toward equality in all industries.” the features that should make it difficult to find evidence of
That proposition is implied by the principle of maximizing such behavior. Their participants tend to have superior cog-
behavior, the foundation of traditional economics. If the rate nitive abilities and self-control. Hence, if there is anywhere
of return on, for example, janitorial labor in one industry in the economy where traditional economics accurately
or location is higher than in another, maximizing janitors describes reality, it should be on Wall Street. That financial-
will move out of the latter and into the former until rates of market participants do not appear to be maximizing is thus
return equalize. This is the central implication of maximiza- considered powerful evidence against the foundation of
tion amid competition. traditional economics.
Behavioral economics challenges the premise of maximiz- By the same token, observing rate-of-return equalization
ing behavior. Homo sapiens differ from Homo economicus—a where we might expect irrationality to abound would con-
perfectly rational person who cares only about their self- stitute powerful evidence for the foundation of traditional
interest—in three ways: Homo sapiens have limited cognitive economics. Behavioral economics suggests that it should
abilities, they have limited self-control, and they care about be hardest to find evidence of maximization in markets
others. The first two differences mean that humans may whose participants have exceptionally limited cognitive
behave irrationally, with the result that rates of return may abilities, even mental disorders, and exceptionally limited
substantially differ amid competition. And, it is alleged, self-control, even drug and alcohol addictions. If rates of
Editor, JEFFREY MIRON, Harvard University and Cato Institute.
return nevertheless tend toward equality in these markets, panhandlers. And if panhandlers’ station choices are maxi-
then perhaps maximization is a more robust foundation for mizing, panhandling rates of return across stations should
economics than behavioral considerations suggest. tend toward equality.
We study such a market: the market for panhandling. We find that stations with more panhandling opportunities
Panhandlers are people who solicit donations from pass- attract more panhandlers and that cross-station differences
ersby in public spaces. Mental and substance disorders in hourly panhandling receipts are statistically indistinguish-
are highly prevalent among panhandlers, who therefore able from zero. Panhandling rates of return thus tend toward
allegedly cannot all be comfortably categorized as rational equality. Extreme behavioral traits, in other words, do not
decisionmakers. prevent maximization in this market. Panhandlers choose
We collected data on the number of panhandlers at stations as Homo economicus would if Homo economicus were a
26 Metrorail stations in Washington, DC, and on hourly street person who solicited passersby at Metrorail.
panhandling receipts at 5 of those stations. Metrorail is
Washington’s public rapid-transit system. Panhandlers
solicit passersby outside its station exits. Some Metrorail NOTE
stations are trafficked by more passersby and thus offer This research brief is based on Peter T. Leeson, R. August
more panhandling opportunities. If panhandlers respond Hardy, and Paola A. Suarez, “Hobo Economicus,” Economic
rationally to incentives, such stations should attract more Journal 132, no. 646 (August 2022): 2325–38.
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