Option 2. Authors, like everyone else, need to have their basic needs met. While a billion readers may satisfy some psychological needs, it won't satisfy others. A billion non-paying readers won't put food on their table either, nor provide the table, nor provide a roof over that table, nor provide a piece of land for that roof to rest upon.

As a reader, I also have to wonder about the quality of authors who prefer readership over earning a living. Paying for a book involves an implicit contract: the readers provides an author with compensation for their work, they provide the reader with something that they want to read. Authors who write for vanity are simply trying to fulfil their own needs without considering the readers needs.