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It all starts with a bagel

Updated: Apr 15

A couple of weeks ago, Citi suspended its head of high-yield credit trading for Europe, the Middle East and Africa over alleged theft from the bank’s cafeteria. Paras Shah learned the hard way that there is no free lunch, even if you are a high-flying banker working in Citi’s European headquarters at Canary Wharf. Several sources have estimated Shah’s salary to be more than 1 m GBP. So, why would someone with a 7-figure salary steal sandwiches from a company cafeteria?


In order to answer that question, let’s get back to “What The Bagel Man Saw”, an article by Stephen J. Dubner and Steven D. Levitt, published in The New York Times in 2004. The article portrays the story of Paul F., an economist who quit his job to start his own bagel delivery business.


Paul F. worked as an economist for the Center of Naval Analyses in Washington in the 60s. His bagel story started after he acquired a habit of buying bagels for his team whenever they won a new contract. This became very popular, and Paul F. started buying bagels every Friday. At some point, Friday bagels became so successful, that it attracted the attention of the people working in other departments as well. To recover his costs, as later Paul F. was buying up to 15 dozen bagels a week, he set out a cash basket to collect money for the bagels. According to his estimates, Paul’s collection rate was around 95 percent. The unpaid 5%, he attributed to oversight of his colleagues.


In 1984, when his institute changed management, Paul decided to quit his job and start selling bagels to the offices around Washington. He had a simple proposition: every morning Paul would deliver a basket of bagels and a cash box to the company’s snack room and collect the money and leftovers in the afternoon. It was an honor-based system: nobody would supervise the cash boxes, trusting that most people would behave honestly.

His business got a wide accept in the market, and, within a few years, he was supplying 700 dozen bagels to 1400 companies. By collecting data on how many bagels and doughnuts he delivered and how much money he collected, Paul F. incidentally conducted a study on white-collar crime.


Paul F. noticed that the recollection rate varied between companies showing various attributes. For instance, higher repayment rates were correlated with smaller-sized offices, as well as with offices where people seemed to like their boss and their work. The bagel repayment rate was also (somewhat counter-intuitively) correlated with the level of unemployment: as the unemployment rate went down, dishonesty increased. One more interesting observation from Paul’s study was that people in higher positions were cheating more - which the authors of the 2004 article originally suggested as an explanation of how these people advanced to those positions in the first place.


From our experience, this view is only one of the possible explanations and a rather limiting one, as one cannot simply assume that promotions can only be obtained through dishonesty. What we have seen more often is another phenomenon: a sense of entitlement that develops once a person reaches a certain position. When we confronted management involved in fraudulent schemes, we often got answers such as: “I have done so much for this company, this is peanuts compared to what I brought in”. The feeling of “I deserve this”, “the rules do not apply me” or “I’m the chosen one” opens up for the propensity for closing an eye (at best) or going for larger frauds (at worst). The rationalization process probably happened a long time before these large frauds, when the first extra coffee was added to a travel expense sheet and nobody reacted to it. Most often, middle managers are the high-risk group, as they are usually exposed to a lot of pressure from the above and resentment from the employees below. They are usually the first ones in line when the firing cuts start. It is no surprise then that they feel they are not getting properly rewarded for their effort and are likely to cross the line as the opportunity presents itself.


The conclusion of the bagel experiment is that the majority of us behave honestly even when we know we are not watched and with something as small as paying for a bagel. However, the study says also that one in seven people cannot resist the temptation and steals. Petty misdemeanors are quite regular in organizations, but should they be tolerated? Is it more difficult to resist a small temptation compared to more serious offenses?


Usually companies do not pay too much attention about minor thefts of, for example, stationery by their employees. However, it is the small things that matter, as a lot of big criminals often start as petty thieves. Citi acted proactively by suspending their sandwich-loving trader. It was not about the money; it was about not to create a precedent and set the right example. Behaviour is key for the culture in an organisation. Setting an example, like in this case, prevents other employees from feeling “authorised” to do the same, thus creating a new norm, and opening up to an escalation of much bigger offenses (both financial but also reputational) than not paying for sandwiches.

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