Saturday, July 23, 2011

This is your brain on charitable giving

In recent years, researchers have begun using brain science to study economic decision-making.  This combination of neuroscience and economics has spawned the new field of neuroeconomics.  Much work in this new field centers on the use of fMRI (functional magnetic resonance imaging).  The fMRI allows scientists to see which parts of the brain are working when subjects make economic decisions.  When some part of the brain kicks into gear, it uses oxygen.  The fMRI detects this depletion of oxygen.  In this way, the fMRI records which parts of the brain "light up" during a decision task.  By combining this with information about what different parts of the brain do, researchers can learn more about how people actually make decisions. 
Recently, Dr. Todd Hare, Dr. Colin Camerer, and others at Cal Tech applied these fMRI techniques to charitable giving decisions.  Previous research had shown that the VMPC (ventro medial prefrontal cortex) part of the brain lights up when people receive immediate rewards such as money or food.  The level of VMPC activation reflects the value (anticipated amount of enjoyment) received from the reward.  In the new experiment, participants made charitable giving decisions.  Just as with immediate rewards, VMPC activation reflected the enjoyment received from making a charitable gift.  When donors gave to organizations that they considered more worthy, they experienced higher VMPC activation.

Although the VMPC reflected the value of both immediate rewards and charitable donations, the mechanisms were different.  Two areas of the brain providing input to the VMPC were especially important for charitable gifts - the anterior insula and pSTC (posterior superior temporal cortex). These two regions have specific functions.  The anterior insula plays a role in empathy.  The pSTC is involved in shifting attention to focus on another’s perspective.
These neuroscience results suggest that the level of value placed on making a charitable gift may be the result of two items.  First, a donor must take the perspective of someone else – presumably the beneficiary.  Second, the donor must have empathy for that person’s situation.  If either of these two elements is missing, then the brain will not calculate a high value for making a charitable gift. 
People who can take someone else’s perspective, but who have no empathy for that person, will have no desire to help the person.  For example, people often take someone else’s perspective to guess what an opponent will do next.  But, this doesn’t suggest any empathy for the opponent.
Conversely, a person may have the potential for empathy, but lack the ability to take another’s perspective.  For example, a potentially empathetic donor may lack the life experience to understand the plight of a person in need.  Direct experience with the potential beneficiary’s circumstances could make it easier to put oneself in the other person’s shoes.

Much of the work of successful fundraisers focuses on encouraging these two behaviors – empathy and taking another person’s perspective.  This latest neuroscience study suggests that focusing on these two issues is not only common sense, but it actually corresponds with brain activity during a charitable giving decision.

Reference: The Journal of Neuroscience, 30(2), 583-590.

Investing in Younger Donors

How much sense does it make to spend time attracting young donors?  In terms of quick payoffs, younger donors leave a lot to be desired.  They have less income.  They have fewer assets.  They have student loans, childcare costs, and new mortgages.  These financial realities can make philanthropy a distant concern.  So, it is no surprise that younger donors rarely appear on major donors lists.

Yet, some argue that investing in young donors can payoff later.  Fundraisers who develop young donors may create a charitable habit that can persist throughout life.  Dr. Jonathan Meer of Texas A&M University presented results from his investigation of this question at the 2010 American Economic Association conference in Atlanta, Georgia.  Following over 8,000 alumni of a private university for up to 27 years, he explored whether or not giving when young created lifetime giving habits.

Measuring how giving when young affects giving when older is difficult.  It is easy to show that people who give when they are young also give when they are older.  (Indeed, in Dr. Meer’s results, those who were frequent donors soon after graduation were much more likely to still be donors 20 years later.)  But, this is not necessarily useful for the development officer.  This association doesn’t prove that generating gifts from the younger donor actually causes generosity in later years.  It may just reflect that that generous people are generous throughout their lives.

Dr. Meer’s study attempted to overcome this problem.  He investigated the impact of a fundraising “shock” to the normal pattern of giving.  Here the “shock” was whether the alumnus’ freshman-year roommate was a volunteer solicitor during the first five years after graduation.  About 23 percent of alumni were solicited by a former roommate during this time.  Previous studies have shown that being solicited by a former roommate dramatically increases the likelihood of making a gift to one’s alma mater.  By measuring the long-term effect of this one-time high-impact solicitation, the study was able to isolate the results of the fundraising activity itself.  The statistical results implied that frequent giving to the university when young - due to an outside fundraising “shock” - later resulted in giving about 6.5 times more money when older.  Thus, encouraging the giving habit in the first five years after graduation paid large dividends decades later.  Dr. Meer concludes, “… it seems evident that the pursuit of frequent gifts from young alumni, even if the university suffers a loss in the process, is justified.” 

Interestingly, these long-term effects were caused by the frequency of giving.  The amount of giving didn’t matter.  This makes sense if we think in terms of habit formation.  Making ten gifts of $100 may ingrain the giving habit far more than making a single gift of $1,200. 

This study provides unique evidence that charitable giving when young is habit forming.  The effects of giving when young appear to last well over 20 years and can ultimately result in substantial donations.  Investing in fundraising today can result in substantial gifts far into the future.

Charitable giving and childlessness

            The aging of the population is one of the most discussed trends in American demographics.  Less discussed, but just as striking, is a strong increase in childlessness among those nearing retirement age.  The U.S. Census reports that childlessness among women age 40-44 nearly doubled from 10.1% in 1980 to 19% in 2000.  When combined, these two trends predict a dramatic rise in childless older Americans.  How might this demographic shift affect philanthropy?  Several recent academic studies looked specifically at the issue of philanthropy among childless older adults.
Professor Frank Adloff of the Free University of Berlin studied childless donors in Germany.  As a group, childless people in Germany gave less to charitable organizations.  However, this may be due to the lower average age of those without children.  Marco Albertini of the University of Bologna and Martin Kohli of the European University Institute also looked at giving by childless individuals.  Their study of ten European nations found that the difference in current giving among childless individuals disappeared when looking only those over age 50.

Further, specific forms of philanthropy were much more common among older childless donors.  For example, Professor Adloff noted that people who established private foundations were more than 3 times as likely to be childless as the general population.  The desire to provide something permanent to future generations was particularly compelling for these donors.   Childless donors were significantly more likely to list “giving to posterity” as an important motivator for establishing their private foundation.

            U.S. studies have shown a similar tendency for childless donors to make charitable estate gifts.  This is not surprising.  Children and grandchildren are natural recipients of bequests.  In their absence, other beneficiaries – such as nonprofit organizations – may become more attractive.

            In a nationally representative study of those over age 50 in the U.S., childless people were more than four times as likely to report having a charitable estate plan (19.1% v. 4.1%).  Further, childless individuals reporting a charitable estate plan were more likely than those with children to actually generate a charitable transfer after death.  In a related national study, Russell James (Texas Tech University), Mitzi Lauderdale (Texas Tech University), and Cliff Robb (University of Alabama) tracked changes in the propensity to make charitable estate plans from 1996 to 2006.  During this time, the likelihood of reporting a charitable estate plan increased from 3.86% to 5.46% for those aged 55-64.  This represents a significant increase in charitable estate planning within this age group.  The researchers found that increased childlessness was the main factor behind the change.  In other words, the main reason why charitable estate planning increased from 1996 to 2006 was the increasing proportion of childless people within the age group. 

            These research findings all point to future growth in charitable estate planning.  The increase in the size of the older population should drive much of this growth.  But, due to increased childlessness, charitable estate planning should grow even faster than the population of older adults.

References: Ageing & Society (2009) 29, 1185–1205 & 1261-1274; Journal of Financial Counseling and Planning, (2009), 20, 3-14;

Income and Giving

            Having more income makes people more likely to give more money to charity.  That is no surprise.  However, Professors Patricia Hughes and William Luksetich from St. Cloud State University recently found that the kind of income, and which spouse earns the income, also makes a difference.  Their study followed 2,041 continuously married couples in the Panel Study on Income Dynamics from 1994 to 2001.

            Unlike some other studies, Hughes and Luksetich went beyond comparing current year giving with current income.  Instead, they also looked at the average income in the six prior years prior.  They found that average income over the six prior years was a better predictor of giving than income in the current year.  In other words, the level of income during the current year had less effect on giving than the long-term average income did.  Couples tended to make donation decisions based on normal income levels, rather than on current year spikes or drops in income.  This suggests that donors may give a smaller share from temporary income increases, like a one-time bonus, than from permanent income increases.   

            Not only was average income important, but so was the spouse who earned the income.  Giving was much more responsive to changes in the husband’s average income than to changes in the wife’s average income.  Although giving still increased as the wife’s average income rose, it did not increase by nearly as much as when the husband’s average income rose. 

            The study also examined the effects of income volatility.  (High volatility means that the income fluctuated a lot during the six-year period.)  The effects of income volatility on charitable giving also depended on which spouse’s income was volatile.  When the wife’s income was more volatile, giving was lower.  When the husband’s income was more volatile, giving was higher.  The negative effect of the wife’s income volatility was particularly strong for religious giving. 

One possible explanation for the different results is that the wife’s income volatility may come from the wife leaving the workforce due to the birth of a child.  Because the child increases family expenses, little money may be available for charity.  The later re-entry of the wife into the workforce would also generate income volatility.  But, this re-entry may come during the life stage when much of the additional income is set aside for retirement savings.  In such a case, couples might delay giving until they are actually using the income during retirement. 

(Nonprofit and Voluntary Sector Quarterly, Vol. 37, pp. 264-280)

Understanding African-American Donors

Ethnic market analysis is nothing new for most marketers.  Professor David Van Slyke at Syracuse University and researchers at Georgia State University applied this to fundraising by analyzing African-American donors.  African-Americans give well over $7 billion per year.  Historically, African-American philanthropy was centered on churches.  Today that philanthropy extends to every kind of charity.  

This research project used surveys from about 5,000 people in the Atlanta area.  Although African-Americans were less likely to give than whites were, this was simply a consequence of economic circumstances.  At higher levels of education, income, and age, there were no significant differences in charitable giving levels between African-Americans and whites.  Among African-Americans, the likelihood of giving increased with income, education, and frequency of church attendance.  The same was also true for the likelihood of volunteering. 

            Researchers also asked about the potential effectiveness of different donor incentives.  The most influential were, (1) receiving information on how the gift will be used, (2) ability to advance career/profession, (3) organizational membership, (4) discounts at the charity, (5) discounts in the community, and (6) free gifts from the organization.  The ability to advance one’s career was a relatively more influential benefit for African-Americans than whites.

            The survey also asked respondents to rate the effectives of different fundraising methods.  African-Americans rated the most effective techniques as, (1) request of a friend or relative, (2) appeal related to a television or newspaper story, (3) appeal by a community leader or celebrity, (4) mail, (5) telethon, (6) someone at the door, and (7) telephone call.  A request on a website rated as least effective.  The order of these ratings for was the same for whites. 

Although the order was the same, African-Americans rated themselves more likely to respond to each of the techniques than did whites.  Yet, African-Americans did not actually give more.  What causes this discrepancy?  The researchers suggested two possibilities.  African-Americans may have reported themselves to be more receptive than they actually were.  Or, they may just be asked less frequently.  The researchers pointed to evidence of a lack of solicitation from previous findings.  Past research described fundraisers “skipping” black neighborhoods, unwilling to learn of donor interests and preferences in these communities.  This combination of findings suggests that African-Americans may be a relatively untapped market segment.  Although already giving substantially, this group may hold even greater potential for philanthropy.

(Citation: The American Review of Public Administration, Vol. 37, pp. 278-304)

Do the poor give more?

            As a group, Americans are among the most generous.  But, this generosity is not spread evenly throughout the population.  One particularly interesting, and disputed, phenomenon is the “U-shaped” income-giving profile.  This refers to the tendency for those with the lowest and highest incomes to give more of their income to charity.  Drs. Russell James from the Texas Tech University and Deanna Sharpe from the University of Missouri investigated this phenomenon and its causes using expenditure data from 16,422 households.  The data showed that, indeed, the share of income given to charity was highest among those making less than $10,000.  With each additional $10,000 in income, the share given dropped.  This percentage was lowest for those with incomes between $50,000 and $100,000.  Above $100,000, however, the share of income given to charity increased with additional income.  This U-shaped phenomenon occurred in both religious and non-religious giving. 

Previous findings published in the 1990s had challenged the existence of the U-shaped relationship.  However, when this earlier data was reexamined, the challenges turned out to be unfounded.  (The U-shaped relationship disappeared only if researchers intentionally omitted a large set of the households.)

So does this mean that the poor are generous, while the middle class are stingy?  Not exactly.  Two factors prevent this interpretation.  First, the U-shape does not reflect typical behavior.  The proportion of households giving anything to charity is lowest among those with the lowest income.  As income goes up, more households give to charity.  It turns out that the U-shape is caused entirely by the few households that give at least 10% of their income.  The unequal distribution of these highly committed donors creates the U-shape.  Second, these highly committed donors often turn out not to be poor at all.  In fact, low-income donors who give at least 10% of their income have more than six times the liquid assets of others at their income level.  Who are these low-income, high-asset donors?  Typically, they are retirement-aged individuals giving a large share of income, but a small share of liquid assets.  So, although the U-shaped income-giving relationship does exist, it turns out to be caused largely by wealthier donors with lower incomes, rather than by the truly poor.

(Citation: Nonprofit and Voluntary Sector Quarterly, Vol. 36, pp. 218-238.)

Recognition and reward: When the two don’t mix

What motivates donors?  No doubt, this can vary from donor to donor.  But, professors at Duke, Columbia, and Tel Aviv Universities ran experiments to explore two particular kinds of donor motivations, extrinsic motivation and image motivation.  Extrinsic motivation can arise when donors receive a reward or benefit from donating.  These rewards can include tax breaks, tickets, auction items, or gifts.  Image motivation is based on how others will perceive the donor’s actions.  For example, some donations might signal the donor’s philanthropic spirit or wealth.

To test these two motives, professors Dan Ariely, Anat Bracha, and Stephen Meier conducted an experiment with college students at Princeton.  The students participated in “Click for Charity” where they could earn money for a charity by repeatedly pressing particular keys on a keyboard.  The more effort students spent on the task, the more money they raised for the charity.  Some students were assigned to the “public” group.  In the “public” group, students had to share their results with each other at the end of the experiment.  Other students were in the “private” group, where results would not be shared with others.  Not surprisingly, those in the public group gave more effort and, ultimately, raised more money for charity.  This, the researchers’ believed, resulted from image motivation.  Only those in the “public” group had an audience for their actions, and could thus be motivated by the perceptions of others.

But, the experiment did not stop there.  Some students in both groups were also given money incentives.  These students raised money for charity, but they were also paid an amount identical to whatever they had raised for charity.  The compensated students in the “private” group gave more effort than the non-compensated students in the “private” group.  This makes perfect sense.  Although the “private” group had no image motivation, the compensated members had an extrinsic motivation.

  The results, however, were very different for the “public” group.  The compensated students in the “public” group actually gave less effort than did the non-compensated students in the “public” group.  In fact, among the compensated students, the effort levels were the same regardless of whether the students were in the “public” or “private” group.

Why the difference?  The researchers believe that introducing compensation (extrinsic motivation) reduced the image motivation for the “public” group members.  The non-compensated “public” group students knew that others would see their selfless efforts.  But, the compensated students’ efforts could be interpreted as either philanthropic or selfish.  (Compensated “public” group members had to report to others both how much they raised and how much money they received.)    To verify these results, the researchers ran a similar experiment, this time in the MIT gym, where students could “bike for charity.”  As before, adding compensation increased the efforts for the “private” group, but slightly reduced efforts in the “public” group.

How might fundraisers use these results?  While extrinsic benefits like rewards, tickets, or gifts can be useful, it may make more sense to focus these benefits on private activities.  Giving these kinds of extrinsic benefits for visible pro-social activities (such as volunteering) may be counter-productive and actually reduce participation.

Citation: American Economic Review, volume 99, pp. 544-555.

Perceived benefit: How alumni donations vary with child age

Do alumni donors expect reciprocity in admissions decisions?  Does this expectation influence giving, even when the university makes no such promises?  Professor Jonathan Meer of Stanford University and Harvey Rosen of Princeton University investigated this question.  They examined 24 years of donor information from a selective university.  These records included 487,913 “donor years” from 32,488 alumni.

As the alumni donors’ oldest children aged, the probability of making a gift gradually increased.  However, among those whose children would later apply to the university, the likelihood of giving increased dramatically from the time the child was age 14 until age 18.  Conversely, among those whose children did not later apply to the university, the likelihood of giving gradually declined during age range.  This suggests that some alumni parents were making gifts with an eye towards their child’s application.  This pattern existed even without any promises of such reciprocity from the university.

What happened to these donors after the admission decision was made?  If the child was not accepted, the likelihood of donating plummeted, falling far below those alumni whose children of the same age had not applied.  This dramatic drop was essentially permanent.  Indeed, the likelihood of giving for these alumni continued to fall in future years. 

For those whose children were accepted, the likelihood of donating remained high immediately after acceptance, but then gradually fell each year afterwards.  In addition, the gifts made after acceptance were much more likely to be directed gifts.  For example, while those whose child was accepted were only 3.4 percentage points more likely to make a directed gift when the child was age 17, they were 16.5 percentage points more likely to make a directed gift when the child was 21.  This tendency to make directed gifts diminished after the child was past typical college age.  While post-acceptance giving would not influence an admissions decision, directed giving could go to those specific programs that would benefit the attending child.  Thus, one form of reciprocity may be substituted for another.

            All of these same trends also occurred when measuring the total amount of giving, rather than just the likelihood of giving.  Similarly, these same trends occurred when examining the donor’s youngest child instead of the oldest child.  In fact, the drop in giving likelihood was even stronger following a rejection of the youngest child.  (This perhaps relates to the absence of any possible reciprocity from future acceptance decisions.)

            Taken together, this study suggests that alumni donors act as if they do expect reciprocity in admissions, even when the university makes no such promises.  Although donors give for many reasons other than self-interest, there does appear to be some consideration for reciprocity in these donor patterns.  Such a perceived admissions benefit could enhance giving; but it is risky.  If the university later violates the expectation, giving falls much further than for those who never had a child apply.

Citation: American Economic Journal: Economic Policy, volume 1, pp. 258-286.

Fewer Recipients = More Gifts

Will donors give more if a gift is divided among fewer recipients? 
Experimental research by Professor James Andreoni at the University of California – San Diego suggests that the answer is yes. 

Dr. Andreoni’s charitable giving experiment involved 120 participants.  Each chose to either keep his or her full participation fee, or give part of it to others.   In many cases, matching contributions doubled or tripled any gifts.  Participants decided how much to give in 24 different scenarios.  Each scenario changed the number of recipients or the matching contributions ratio.  To keep the choices realistic, researchers transferred the participants’ fees according to one of their choices selected at random. 

Results indicated that donors gave more when their gift was divided among fewer beneficiaries.  Only 17% of the 120 participants gave the same regardless of the number of beneficiaries.  Most participants gave less as the number of beneficiaries increased.  On average, individuals valued $1 given to each of x recipients at the rate of x0.68.  So, the donor who gave a $1 gift to one recipient would give up only $1.59 to make a $1 gift to each of two recipients.  The same donor would give up only $2.55 to make a $1 gift to each of four recipients.  Put another way, the donor who gave $10 to one recipient would allow a division of the gift between two recipients only with a $5.90 matching gift subsidy.  To have the gift divided among four recipients, the donor would require a matching gift subsidy of $15.50.

The scientific finding is that altruism is “congestible.”  Donors prefer giving greater benefits to fewer people, rather than smaller benefits to more people.  For fundraisers, one lesson from the experiment may be to match donors with smaller groups of beneficiaries where possible.  Connecting a donor with a particular university department, rather than the university as a whole, may produce more gifting.  Similarly, linking a donor with one child affected by famine may generate more gifting than a general appeal for the thousands affected. (Journal of Public Economics, 91, 1731-49).

What Happens After a Temporary Matching Gift Expires?

            Matching gifts can come from employers or major donors seeking to spur giving.  Past research (and common sense) suggests that donors will respond to a temporary matching gift opportunity by giving more.  But, what happens after the match ends?  Does the previous matching opportunity encourage continued high donations in later periods?  Does giving return to the level that existed before the match?  Or, does removing the match cause giving to dip below previous levels?

            In an attempt to answer these questions, Dr. Stephan Meier conducted a field experiment at the University of Zurich in Switzerland.  The university’s official letter for renewing registration contained checkboxes for gifts to two university charitable funds.  The first box asked students if they wished to donate 7 Swiss Francs (about $4.20) to a fund offering cheap loans to students in financial difficulty.  The second box asked if they wished to donate 5 Francs (about $3) to a fund supporting temporarily visiting foreign students.  Every student received the letter every semester as part of the registration process.

            To test the effects of a matching gift opportunity, 600 randomly selected students received a special insert with their registration letter.  The insert indicated that an anonymous donor would match their gift if the student checked both donation boxes.  Half of the inserts offered a matching rate of 25% of the student’s gift, and half offered a 50% matching rate.

            As expected, the students receiving matching gift inserts were more likely to give to both funds.  However, the semester after the matching gift experiment, things changed.  Not only were these students less likely to give than they were during the matching opportunity, they were also less likely to give than they were before the matching opportunity.  During the semester after the experiment, those who had never received the matching offer were far more likely to make a gift.  Fortunately, the negative “hangover” effect gradually faded in later semesters.  Overall, tracking donations for seven semesters revealed that the matching gift offer did not increase the students’ total donations. 

The results of this experiment were by no means conclusive.  It took place in a specialized setting with small, preset gifts.  Nevertheless, it opens some interesting questions for fundraisers.  Results from a temporary matching gift opportunity may include donors who are simply “pulling forward” future gifts.  Others may grow accustomed to the matching opportunity and require time to re-adjust afterwards.  A cautious course may include planning for the possibility of an income dip following a temporary matching gift campaign. (Journal of the European Economic Association, vol. 5, pp. 1203-1222.)

The myth of the coming flood

            Are charities about to be deluged with resources from estate gifts?  New research from Texas Tech University published in the American Journal of Public Administration suggests that this hope may not be completely realistic.  While the American population is graying, several factors may limit the connection between this demographic shift and your charity's gift income.

            Estate gifts do represent income, but they are often the last gift from long-time donors.  An analysis of approximately 6,000 deceased members of the 1995-2006 Health and Retirement Study suggests that the loss of current giving and volunteering previously provided by the deceased donors largely offsets the value of estate gifts.

            Although charitable transfers do come from estates, these gifts are highly skewed to the wealthiest decedents.  Consequently, charities whose supporters are less wealthy may not fare well.   In this study, the 62% of decedents with estates under $100,000 averaged $666 per year in annual gifts while alive.  At death, this group produced an average charitable estate gift of less than $100.   The 22% of decedents with estates between $100,000 and $500,000 averaged $1,702 in annual giving before death, and $3,223 in charitable estate gifts.  Thus, estate gifts made up for less than two years of these decedents' previous annual charitable giving.

            Charities with wealthier donors would seem to be in a better position.  Very wealthy estates leave a larger share of assets to charities.  However, estate tax return data also suggest that the charitable estate giving of the very wealthy is much less likely to support existing public charities.  Rather, at these larger sizes of estates, decedents have sufficient resources to establish their own private foundations.  Although these are charitable gifts, they do not come directly to existing public charities.  In some cases, these new private foundations may even be establishing well-funded competitors for existing public charities. 

Incorporating this reality, the overall estimate of estate gifts going to public charities was four times the previous average annual level of giving by decedents.  Of course, at current interest rates, this is far short of what would be needed to replace the decedent's pre-death charitable giving.

            What can fundraisers do to improve these results?  First, developing replacement donors from the younger generations will be essential to the survival of any charity.  This represents no easy task.  Other research has indicated that the baby boomer generation has been less charitable than their elders were.  Further, as America grays, there will be relatively fewer younger donor prospects for each deceased donor.  Finally, much work remains to be done in charitable estate planning.  Projections based on this national survey of over 22,000 seniors suggest that approximately 90% of donors (over $500/year) over age 50 will die with no charitable component to their estate plan.  Without significant changes, the magnitude of this missed opportunity may affect charities for generations to come.

Giving by example

            If donors hear about or see gifts made by others, does it influence their own gifts?  A series of experimental investigations set out to answer this question.  Professor Rachel Croson from the University of Texas – Dallas and Dr. Jen Shang of Indiana University created an experiment working with the fundraising campaign of a public radio station (Experimental Economics, volume 11, pp. 221-233).  During a pledge drive, renewing members who called were told, "We had another member; they contributed [either $75 or $180].  How much would you like to pledge today?"   In addition, a response sheet attached to a letter requesting renewal contributions indicated that the station "received a contribution of [either $75 or $180] from a member like you, and we invite you to join this member in renewing your membership today."  When the comparison amounts were lower than the previous year's pledge, the gifts tended to be lower than the previous year's pledge.  Similarly, when the comparison amounts were higher than the previous year's pledge, the gifts tended to be higher than the previous year's pledge.  This was true in both the phone and mail version of the experiment.

            Extending this same idea to personal solicitation, economists at the University of Gothenburg in Sweden worked with Dr. Francisco Alpizar to design an experiment for international tourists at Poas National Park in Costa Rica (Experimental Economics, volume 11, pp. 299-314).  After a survey about their experience in the park, tourists were given an opportunity to donate to support the park.  Further, some were told, "We have interviewed tourist from many different countries and one of the most common donations has been [2 or 5 or 10] US dollars."  The resulting donations were lowest for the $2 reference group and higher for the $5 and $10 reference groups.  However, the donations were the highest for the group given no examples.  This result was the same whether the donations were made directly to the park official or in a nearby concealed booth.

            Finally, Dr. Richard Martin of the University of Regina, Canada and Dr. John Randal of Victoria University of Wellington, New Zealand, used an experimental design to test the effects of donation examples without any personal, phone, or mail solicitation (Journal of Economic Behavior & Organization, volume 67, pp. 228-238).  Instead, they experimented by changing the contents of a transparent donations box located in the foyer of an art gallery.  They tried four approaches.  In one, the box held mostly large denomination bills.  In another, it contained mostly small bills.  In a third, the box contained mostly coins.  And, in the final arrangement, the donations box was empty.  For each test, over 5,000 visitors to the museum passed by the donations box in the foyer. 

The percentage of people donating was smallest for the empty box (1.86%).  When money was in the box, more people made a donation when the box contained mostly coins (3.37%).  Fewer people donated when the box contained small bills (2.64%) or large bills (2.34%).  However, the average size of those donations was the smallest when the box contained mostly coins ($1.69).  Conversely, the average donations were larger for the example with small bills ($2.38) and large bills ($2.39).  Overall, the highest total dollars per visitor came from the box with small bills.  The fewest dollars per visitor came from the empty box.

These three research projects suggest that people are influenced by donation examples.  This occurred whether the solicitation was in person, by phone, by mail, or by a donation box.  Although examples do exert influence, they can either raise or lower donations.  The difficult issue for fundraisers is finding the right comparison amount.  And that, like most things in fundraising, requires knowing your donors.

Soliciting donors with a gift

            Does it make financial sense to include a small gift with a donor mailing?  Dr. Armin Falk of the University of Bonn in Germany conducted a field experiment to help answer this question.  Dr. Falk worked with a large international children’s relief charity to mail three different versions of an appeal to about 10,000 donors in Zurich, Switzerland.  All households received identical letters requesting gifts to fund schools for street children in Bangladesh.  One third of the recipients received a set of four postcards featuring reproductions of paintings drawn by children.  Another third received only one of the postcards.  The final third received nothing in addition to the letter.

            The frequency of donations increased by 17% when one postcard was included and by 75% when all four postcards were included.  The inclusion of postcards was most likely to increase the number of smaller gifts (up to $50).  It had no positive effect on the frequency of large gifts (over $100).  After subtracting the cost of the postcards, net revenue still increased substantially with the postcards.  Inclusion of one post-card generated a net revenue increase of 22%.  Inclusion of four postcards yielded a net gain of 55%.

            Dr. Falk then examined whether these gains were real, or simply reflected donors changing the timing of their giving.  To explore this, he compared the response rates among the three groups to another appeal sent two months later.  There appeared to be a small amount of substitution take place; those who had received postcards in the previous appeal were slightly less likely to give in the following appeal.  Even with this substitution, the four postcard approach still generated over 38% more revenue across both appeals combined.  While this study does not show the effects of repeated gift interventions, it does suggest that a one-time small postcard gift has a positive effect on response rates, total revenue, and net revenue.

(Citation: Econometrica, Vol. 75, pp. 1501-1511)

Competitive Giving

Capital campaigns and fundraising drives often try to tap into the competitive spirit.  But, does this actually generate more gifts?   Economics professors John Duffy, from the University of Pittsburgh, and Tatiana Kornienko, from the University of Edinburgh, investigated this question in the laboratory.  The researchers wanted to find out if competition, by itself, could increase charitable giving.  In other words, would competition matter even if there was no opportunity for prestige or public acclaim from winning?

To test this, the professors recruited participants to play a series of “dictator” games.  In each round of the game, subjects received $10 to divide between themselves and a randomly assigned, unknown person in another room.  Participants could choose to share any amount or nothing at all.  Participants also chose a secret ID code, known only to them.  Researchers divided participants into one of three different rooms, with ten people in each room.  In the “generosity tournament” room, experimenters ranked the most generous participants after each round.  The secret ID codes were ranked and written, in order, on the board.  Because the codes were secret, only the participant knew which code was his or hers.  So, only the participant knew where he or she ranked.  In the “earnings tournament” room, the competition was described differently.  Here, experimenters ranked those who had earned the most playing the dictator game.  The top rankings went to those who kept the most money.  Again, the rankings listed only the secret ID codes.  Finally, in the third room, the secret ID codes were not ranked. 

In all, 200 participants played ten rounds of the game.  Did ranking the secret IDs after each round affect the generosity of the participants?  Yes.  Those who played under different ranking schemes shared dramatically different amounts.  Participants in the “generosity tournament” ranking gave away 26% of their money grants.  Those with no ranking gave away 14% of their money grants.  Those in the “earnings tournament” ranking shared only 7% of their money grants.  This dramatic difference occurred even though each person’s relative standing was hidden.  Only the participant knew which secret ID code belonged to him. 

Because individual identities were secret, the researchers believed that this difference in giving was caused by pure competitiveness.  Prestige or reputation should not have been a factor, given the individual anonymity.  Further, in a personality survey given to participants afterwards, those who scored highest on competitiveness were also the most likely to be influenced by the rankings design.  Also, rankings were mostly influential for those who were not ranked at the top already.  A top ranking apparently sent the message that previous behavior was more than sufficient – at least until the ranking changed.

Publishing donor names at various giving levels can combine public recognition with the potential for mild competition.  These findings suggest that donor rankings, even if not publicly shared, could influence charitable giving.  Might some donors find it motivational to see how their ranking has changed over the years?  Rankings could be assigned by percentile, top 100, or subdivided into regional or other categorical divisions.  Even if such rankings were never made public, this research suggests that donors’ knowledge of their rankings could significantly influence financial decisions to share income.  Perhaps you might consider other ways to inspire donors with new competitive giving opportunities in your organization?

Source: Journal of Economic Behavior & Organization, 74, 82-103

Russell James, J.D., Ph.D.

Director of Graduate Studies in Charitable Planning

Texas Tech University

Matching Works. More Matching Doesn’t.

Many fundraisers can attest to the response increase caused by a matching gift opportunity.  But, does it matter if the match is $1 for $1, $2 for $1, or $3 for $1?  Dr. Dean Karlan of Yale University and Dr. John A. List of the University of Chicago set out to answer this question by conducting an economic field experiment.  Working with a politically liberal nonprofit focused on civil liberties and a donor willing to provide matching funds, they created several different matching gift opportunities.  Appeal letters were mailed to 50,000 donors who had given to the organization in the last 15 years.  (The mailing excluded major donors giving over $1,000.)  Two-thirds received an appeal letter and a separate card announcing that another donor was willing to match their gift.  The match was either $1 for each $1 given, $2 for each $1 given, or $3 for each $1 given.   Others received the same letter, but without the matching gift opportunity. 

            The response rate was 1.8% for letters without the match.  Letters with a matching gift offer had a response rate of 2.2%.  Without a match, each letter sent averaged 81¢ in contributions.  With a match, this average rose to 95¢.  However, the results from matching did not rise as the matching level increased.  In most measures, the matching ratio made no significant difference.  When there was a slight difference, the 2-1 match outperformed both the 3-1 and 1-1 match. 

The matching gift letters also included different descriptions of the maximum total amount that the anonymous donor had agreed to match.  The letters indicated that the donor would match up to $25,000, $50,000, $100,000, or, alternatively, the maximum was not stated.  Differences in this maximum amount had no affect on the response rate.  (Oddly, the average contribution per letter sent was highest for the $25,000 maximum amount.)

A final finding of the research was that the effectiveness of the matching offer depended upon the region’s political leanings.  In states that had voted for Bush in the 2004 election, the matching gift offer had a very strong positive effect on donations.  The same offer had no significant effect in states that had voted against Bush in the 2004 election.  Of course, these results may differ depending upon the type of nonprofit organization.  Nevertheless, the study authors suggest that, despite fundraiser claims to the contrary, the level of match makes no difference in donor response.

            (The American Economic Review, Vol. 97, pp. 1774-1793)

The “eyes” have it

               Does being watched make us more generous?  Several studies suggest this may be true.  Recently, professors in Japan conducted a brain imaging study where subjects made choices about giving to 78 different charitable organizations.  During these choices, the subjects could see on a video screen when two student observers were watching them via a camera.  Analysis of brain activation showed that brain reward systems activated when subjects made a charitable gift.  But, these reward systems activated more strongly when subjects made a gift while being watched.  In other words, the neurological “payoff” of being charitable was higher when others were watching. 

In this experiment, in order to make a charitable gift, the participants had to give up the right to receive a payment.  Of course, many subjects chose to keep money for themselves.  As expected, choosing to keep the money also activated the brain’s reward system.  But, the neurological “payoff” for keeping the money dropped when observers were present.  The presence of observers made giving to charity more rewarding and simultaneously made keeping the money less enjoyable. 

The brain scanning results suggest two important ideas.  First, making a charitable gift can generate as much of an immediate “wow” experience from the brain as receiving money.  Second, knowing that others are observing the charitable giving can substantially increase its enjoyment.

               Another study suggests that the observers need not even be people.  Professors Kevin Haley and Daniel Fessler at UCLA conducted an experiment where participants received small sums of money and made choices about whether or not to share with others.  Some people made these choices on a computer with a standard desktop background.  About half of these participants decided to share with others.  The rest of the participants, however, made these choices on a computer with an “eye spots” background.  Here, the computer’s desktop background was a drawing of two eyes.  In this group, 88% decided to share financially with others.  This simple drawing of eyes on the computer’s desktop dramatically increased giving behavior.

               British professors Melissa Bateson, Daniel Nettle, and Gilbert Roberts tested a similar strategy to encourage contributions to an office’s “honor system” coffee collection.  In the office break room, coffee and tea were freely available.  Instructions above a donation box asked those consuming to contribute funds for future coffee and tea purchases.  Each week, the image above the instructions was changed to either a photograph of flowers or a photograph of eyes looking at reader.  During the ten weeks of the experiment, donations rose dramatically whenever the image of eyes appeared above the instructions.  Once again, the presence of eyes observing the subjects – even a photograph of eyes – increased donations.

               These studies all point to the significant impact of perceived observation on charitable behavior. These changes can occur, not only from actual observation, but also from a drawing or photograph of eyes.  For fundraisers, creating the appropriate social context for charitable decisions is critical.  Through perceived observation, fundraisers can increase charitable giving, and can even increase the neurological rewards from making those charitable gifts.

References: J. of Cognitive Neuroscience 22, 621-631; Biology Letters, 2, 412-414; Evolution & Human Behavior, 26, 245-256

Professor Russell N James III, J.D., Ph.D. directs the Graduate Certificate in Charitable Financial Planning program at Texas Tech University,