The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life (26 page)

          
CHAPTER NINE

       
What Really Makes People Give to Charity?

          
Don’t Appeal to People’s Hearts; Appeal to Their Vanity

When you see a homeless person in the street, or the disfigured face of a child on the cover of an envelope, or a Salvation Army volunteer ringing a bell during the holiday season, chances are you will be moved to open your pocketbook. And if you are like most Americans, you probably give time or money to worthy causes all around the world every year.

In fact, Americans tend to be a pretty generous bunch. Nine out of ten people in the United States donate time or money to at least one charitable cause every year. Charitable giving by individuals in the United States is now more than $300 billion dollars a year—about the size of Greece’s entire GDP. Add in charitable contributions by companies and foundations, and that number jumps much higher.
¹

In total, we’re talking about a gigantic amount of money. Over the past forty years, charitable foundations have popped up all over the place. Although this trend has certainly relieved the strain on the US
federal government to provide such public goods as aid to the poor, one question remains largely unanswered:
Why, exactly, do we give?

Most people would say they give because they want to help others. But is such altruism the only reason for people’s generosity? Our research reveals it is not. In fact, our multiple field experiments with several different charitable causes—which involved communications with over a million people—show compelling evidence that (brace yourself) our psychological reasons for donating are often more selfish than most of us would care to admit.

One obviously selfish reason for donating is the tax benefit we get from doing so. The US government effectively subsidizes our donations to causes that range from church auctions to saving the whales. Of course, even in the absence of tax relief, people still spend their hard-earned cash to help a cause; we usually don’t ask for a receipt from the homeless person.

So if we give for reasons other than pure generosity or tax benefits, what are those reasons? From a fundraising point of view, this is an important question. Surely people who raise money for charities need to know the underlying motivations for giving, why donors remain committed to the cause, and why funders might stop writing checks. Nonprofits also need to know how to increase donations, particularly in a time of massive cutbacks for services at the local, state, and federal levels. Additionally, the US government would probably be interested in finding out whether the billions of dollars citizens write off annually from their tax returns makes real economic sense. If the government were to cut back on tax breaks for charitable gifts, would people stop giving?

Like every type of organization, nonprofits rely on their own peculiar blend of conventional wisdom. In our travels, we have learned that people in every walk of life tend to follow the received wisdom of previous decision makers, or rely on “gut feelings” rather than verifiable data to make their decisions. In the charity
world, for example, soliciting donations has been pretty much a matter of tradition and trial and error. When setting up the next pledge drive, fundraisers rely on past practices based more on anecdote than science.

But regardless of whether you run a charity, a corporation, an auto shop, or a startup business, operating on conventional wisdom is usually a silly thing to do, particularly when your stakeholders (your employees, the people you serve, and the people who support you with their dollars) count on you to intelligently manage things. In this and the following chapter, we slide the charity sector under the microscope and put some standard ways of doing things to the test.
²

But our findings don’t just apply to charities. As you will see, they have wider implications for any organization.

Planting Seeds

The origins of our research in philanthropy date back to 1997, when John was a wet-behind-the-ears assistant professor from the University of Central Florida (UCF). At that time, John was spending most of his time testing economic theory, slowly making his way up the research hierarchy using field experiments in the only market he really knew well: sports card collecting.
³

One day, John was approached by Tom Keon, the dean of the business school at UCF. Keon wanted UCF to become a top research institution. The only way to do that, Keon was convinced, was for each academic department in the business school to choose one niche area in which to specialize. After the department made its choice, he would funnel gobs and gobs of resources into that area.
⁴

With a background in environmental and experimental economics, John decided that one of his niche areas should win the “contest.” After months of bickering and lobbying, the faculty voted nearly unanimously in favor of environmental economics,
with experimental economics serving as a strong complement. It was a big day for John and his colleagues, who celebrated with beer and pizza.

Soon after the vote came in, Tom Keon delivered the winner’s spoils. “John, congratulations; your area has won. I have decided to make this really work, we need to start a Center for Environmental Policy Analysis” (CEPA, as it was later called). “And you are going to be in charge of that.”

John quaked in his loafers.
⁵

“Of course, you’re going to have to go out and raise money for it,” the dean explained. “The school will give you $5,000 in seed money. You’re going to have to figure out how to use it to raise a lot more.”

John had never studied the public sector, and he didn’t know the first thing about fundraising beyond occasionally responding to some of the heart-wrenching pleas he regularly received in his mailbox at home. So he decided to do a little research into tactics for using seed money for a fledgling nonprofit. He read everything he could find on the subject, but absolutely no quantitative research existed about how much money was required to start a campaign. Indeed, he found little rigorous research of any sort. So he had to do his own research. What were the assumptions upon which this world of fundraising was built? He decided to talk to the fundraising experts at some of the largest charities in the world.

One afternoon he found himself chatting with a dapper, silver-haired gentleman in a tweed jacket who worked for a large animal-protection foundation. The conversation went something like this:

       
J
OHN
: The dean gave me $5,000 in seed money. How much more will we need to start a capital campaign?

       
H
IM
: Ah. There’s a silver bullet for this!

       
J
OHN
: Really?

       
H
IM
: Yes (leaning forward). You need 33 percent of your goal. So if you’re trying to raise $15,000, you need $5,000. 33 percent is the magic potion.

       
J
OHN
: Wow. That’s great, thanks! But how do you know it’s 33 percent? Why not 50 percent or 10 percent?

       
H
IM
: Because I’ve been in this business for a long, long time, and that’s how it’s done. It’s exactly 33 percent. If you start the campaign with more or less than that, the campaign will not raise as much money.

       
J
OHN
: But how do you
know
that’s the case? What’s the evidence for that? I haven’t been able to find any research on this . . .

       
H
IM
: (a little exasperated) I know because I learned it from my former boss, who was in fundraising for a long time himself. This is what we always do. Trust me.

       
J
OHN
: (equally exasperated) But how did
he
know?

You can see where this conversation was going. This well-meaning guy hadn’t given much serious thought of his own to raising more money. He knew much more about putting together a charitable gala than about fundraising innovation. But there John was, just a few weeks into his foray as a part-time charitable fundraiser, and he already seemed to have reached the depths of what some of the most accomplished folks in the business knew about seed money.

There is something “off” about charity, John thought. But people like the dapper gentleman were smart; what was missing? John concluded that they had not used economic field experiments to scientifically study the underpinnings for why people give. Their vibrant sector was driven by anecdotes, not science. This was
disappointing but, for a young researcher, it represented a unique opportunity. Here was a sector that could importantly be influenced, and tremendously helped, by field experiments. In John’s mind, the end game would be a scientific revolution that dramatically changed the manner in which the charitable sector conducted its business.

Before getting into how seed money works, let’s try a little thought experiment just for fun. The following ideas are common in the fundraising world, and they are typical of the assumptions people make every day. (Some of them have been proven to work well—the others, not so much. In the course of the next two chapters, you’ll discover which gimmicks in each group have been shown to be the most effective, and why.)

Group A:

       
•
  
1:1 matching grants (“If you call now, an anonymous donor will match your donation dollar-for-dollar—doubling your donation!”)

       
•
  
2:1 matching grants (“tripling your donation!”)

       
•
  
3:1 matching grants (“quadrupling your donation!”)

Group B:

       
•
  
Lotteries (“If you donate, we’ll enter your name in a lottery.”)

       
•
  
Refund and rebate offers (“If we don’t raise $20,000, you’ll get your donation back!”)

       
•
  
Tontines (“The more you donate, the bigger the prize you stand to win!”)

Group C:

       
•
  
Door-to-door solicitations

       
•
  
Direct-mail campaigns with a picture of a suffering animal or child and an outer envelope that says, “Your donation can save a life today!”

       
•
  
“We have $5,000 in seed money. Help us raise $25,000!”

The more we looked into it, the more we realized that everyone had an opinion about what worked and what didn’t. But there was little scientific evidence pointing to
why
people give money to charity, or why they respond to marketing schemes like these in general. Think about it: how often do marketing and sales people use tactics like this to coax prospective customers to part with their money? In fact, the whole economics of charity looked like a promising field of inquiry, because the implications, as you will see, apply broadly to just about every walk of life.

Follow the Leader

The first thing the research center needed was some new computers. Six, to be exact, and the $5,000 wasn’t going to cut it. So late one night, we got to talking with our friends and fellow economists James Andreoni and David Lucking-Reiley, and together we concocted a plan to develop our first test of charitable fundraising practices.
⁶

We split the full capital campaign for the research center into several smaller campaigns to fund the six computers the center needed, and each campaign served as a separate experimental treatment. We sent several versions of the same solicitation letter to the homes of 3,000 central Floridians, explaining that the new Center for Environmental Policy Analysis (CEPA) at the University of
Central Florida would examine local, state, and global environmental issues such as air and water pollution, endangered species protection, and biodiversity enhancement. Would they contribute some money to buy computers for the researchers?

In asking people to consider making a contribution toward the purchase of a $3,000 computer, we suggested different seed level amounts in a variety of treatments. In one letter, we said we’d already obtained 10 percent of the cost, so we asked for money to cover the remaining $2,700. In another letter, we said we’d raised 33 percent of the cost, so we asked for help in garnering $2,000 more. Another letter stated we’d raised 67 percent of the cost, so we hoped donors would chip in an additional $1,000. Some letters said that if we didn’t raise the money for the computers, the money would be used to cover CEPA’s operating expenses. Another treatment said that if we didn’t raise the money, we would refund the donation. All these different letters were accompanied by the usual “thank you,” a contribution form, and a postage-paid envelope. We sent the letters out and waited.