Wednesday, March 05, 2014

Who Gets What When You Give?

This post may be a bit of a downer for some of my bleeps. It mixes economics and altruism. It raises questions about human nature. You've been warned. If you don't want to leave the happy bubble of self satisfaction about your charitable giving, stop reading. And even if you do, there are no answers here. Just some nagging questions.

Still there? OK. Here goes.

Some time ago, a doubt began to nag me about charity. I think it started with a passage in "Made to Stick" (2007) about the "Mother Theresa" effect. Researchers found that an appeal to give to a program was much more effective when it was based around an individual child than about statistics about hungry children. Why the variation? It seems that our charitable impulses are more emotional than analytical, and that the use of statistics puts a potential donor in a more analytical, and less generous, mood. The authors saw this as instructive, and urged readers to craft emotional messages, that would make people care, which would then make them act.

Sounds good, right? What could be nagging me about this? Yeah, well, it comes back to those hungry children (plural). This research indicates that for the donors, it isn't really about feeding the children, it is about making the donor feel good. Homo economicus and the selfish gene raise their heads. But I put these thoughts aside.

A few years later someone sent me an article from the Boston Globe entitled "Why We Give to Charity." More research indicating the self interested side of giving. That people give for the "warm glow" that comes from giving. And a quote from a researcher named John List: "people get utility or satisfaction out of giving to a good cause. And they do not care how much public good is provided." Uh oh.

As an antidote, I read Peter Singer's wonderful book, "The Life You Can Save" and have followed his (and others') thinking about "effective altruism." This philosophical framing may help the well intentioned exercise their rational, analytical sides while still making a significant commitment to charity. This has informed our family's giving (see my annual posts on Charity for examples).

Then, at the end of last year, I was listening to a Freakonomics podcast, "How to Raise Money without Killing a Kitten" (a title I suppose Dr. Singer would appreciate), and heard the previously mentioned John List talk about some of his recent research on why people give to charity. So I bought his book, "The Why Axis" and dug in.* List and his colleague, Uri Gneezy, are doing some very interesting work using field experiments to test economic behavior (which was interesting to me in light of my concerns about randomized controlled trials in development work. But I digress.) How's this for a follow up quote: "multiple field experiments with several different charitable causes- which involved communication 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." What follows is a critique of the way philanthropy and fund raising are done, and some creative (and gut nagging) suggestions on ways to do both better.**

Why does this matter? After all, if people are giving to charity, isn't that a good thing? Does it matter whether they are motivated by a warm glow, recognition in their community, tax policy or a pretty girl? Well, remember those hungry children… it matters to them. To the extent charity is motivated by donor considerations, instead of beneficiary considerations, we risk an inefficient allocation of resources at a massive scale ($316 billion in the US last year). There are few incentives for donors to give well, track progress and call out poor performance. The donors think they are helping save hungry children- the chance that one organization may feed children 17% more effectively than others is unlikely to be known, or appreciated, by most.

Unlike trying to pick a good stock investment, picking a good donation is harder. There is little incentive to compare if one is motivated by a warm glow. And there are not effective market mechanisms to cull the weaker players. Once we give, our reason to monitor goes away without an expectation of return (although not entirely if we expect to give again to the same charity). And there is some risk we might lose our warm glow if we look too closely. Why bother?

Where does this leave me, other than feeling a bit down about human nature, and less sure of our altruistic tendencies? Fortunately, there is good work being done on impact. It is early, but useful. Professionally, I am fortunate to be part of a group of funders who is working hard to support organizations that are effectively addressing poverty, Big Bang Philanthropy. For individuals who are willing to do some homework to be better at giving, there are organizations such as GiveWell and Charity Navigator. There are even lists of suggestions from both economists and philosophers.

Are there charitable super stars who get it right every time?  I haven't found them, but continue to search for, and study, those that have track records of long term success (all the while letting that nagging doubt about motivations inform my search).
* by the way, great book, my best read so far in 2014.
** if you would prefer to take the money you would spend on the book and donate it to an effective charity (which would be both analytical and generous and therefore unlikely), here is a link to a series of excerpts that will give you a taste of their work.