Alex Steer

582 words | ~3 min

The Economist has an interesting piece which reports on a forthcoming paper suggesting that monetary incentives for charitable giving have a confounding effect on image-based incentives. In other words, it's fairly well established that people are more generous when they think other people are watching, but when other people are watching and someone offers you some money every time you give to a good cause, you're likely to give less (because it makes you look bad).

This is interesting from the point of view of behavioural economics, but does it have any real-world application? The Economist piece ends:

Cleverly designed rewards could actually draw out more generosity by exploiting image motivation. Suppose, for example, that rewards were used to encourage people to support a certain cause with a minimum donation. If that cause then publicised those who were generous well beyond the minimum required of them, it would show that they were not just “in it for the money”. Behavioural economics may yet provide charities with some creative new fund-raising techniques.

This may be true, but I don't think it's necessarily anything new. It most obviously applies to fundraising techniques like black tie dinners or auctions. In the first case, you give some large amount of money and get to live it up for the evening, with the (hopefully substantial) remainder of your ticket price going to the cause you're supporting. In theory that's a pure reward mechanism: you give, and you get something in return. With an auction, likewise, you bid for the chance to spend a week on a yacht or a day at a spa, and the sum from the highest bidder goes to the charity. Again, this sounds like the reward-based mechanism.

But it's not. At least, not entirely. People pay disproportionately high ticket prices for charity dinners, and bid themselves to the edge of space at charity auctions for things that are typically worth much less to the winner than what they fetch. The reason given is, usually, that it's 'all in a good cause' - and that's as true of mums and dads paying 50p to do a coconut shy as it is of billionaires at gala dinner. Using the framework above, we can see another reason. Participating in the auction, the dinner or the coconut shy makes you look good. Whatever you may win (especially if it's a coconut) is a fringe benefit at best.

So it seems that fundraisers are already clued in to this bit of behavioural knowledge. Charities and foundations are good at recognizing their major donors, for exactly this reason: the plaque on the wall, the picture in the paper, they all help to raise the profile of the philanthropist, and encourage him or her to keep on giving.

Knowing what the Economist article tells us, though, we might be able to make smarter decisions about what fundraising events to organise: specifically, should we put on those where people are most free to give above a given baseline, knowing that they're likely to do so in the quest for public praise? By this logic, an auction is a much better idea that a black tie dinner. At a dinner, once you've paid for the ticket, there are limited opportunities to flash your wallet for your good cause. At an auction, you can actually fight with other guests to give away as much as you can.