Nudging the Social Sector

Interesting discussion over at Tactical Philanthropy on investing in non-profits, and the various roles financial capital can play. BOPreneurs should read it carefully, as several funders post their thoughts on this topic.

Be sure to read comment #14 from Mario Marino, one of the long term leaders in this field, and someone who has spent a long time both with "plain old" entrepreneurs and social entrepreneurs, as well as VC's and foundations. Since I am reading "Nudge" right now, I find his comments about the role of foundations as nudgers intriguing.

To expand on this just a bit more, "Nudge" suggests that a model of "libertarian paternalism" be adopted. When you need to provide choices (to customers, users, citizens) the authors suggest that you utilize "choice architecture" (dare I say "design") to bias decisions toward those "most likely to help, and least likely to inflict harm." Nudging can happen unintentionally (when you are eating with others, you eat more), but the use of choice architecture is an intentional act. Mario's post implies that several of the organizations he names are nudging, but doesn't discuss whether they are collaborating on intentional nudging, or using a similar choice architecture.

Certainly the field of philanthropy suffers from some of the inherent biases that the authors suggest hinder decision making and resource allocation. Raise your hand if you think that, on occasion, donors demonstrate a bias towards the status quo (at least in their actions, if not their brochures and websites) and towards being loss averse ("losing something makes you twice as miserable as gaining the same thing makes you happy"). And, "loss aversion helps produce inertia, meaning a strong desire to stick with your current holdings." OK, you can all put your hands down!

From my reading of the book, the foundations/donors are in a good position to nudge using choice architecture tools for their grantees/investees. They are in the business of funding, and therefore are in a position to use nudges to encourage better decisions. Unless, of course, the entrepreneurs gang up and refuse to take investments unless the donors follow a new rule set. That seems unlikely in the near future.

A step in this direction would be an effort to co-create a rule set that both improves decision making at the foundations and performance by those that are funded (or not). Perhaps the Center for Effective Philanthropy or Skoll Foundation will build on their early work in this field to drive more accountability into the sector. Right now, I think that this is happening slowly, if at all. Most organizations and foundations seem to be optimizing within their walls, rather than for the network as a whole. They are still working on the mousetrap.