The New York Times Magazine today is devoted to “Money”, and it includes an article that should be read by every parish stewardship chair or nonprofit fundraiser. Written by the New York Times economic columnist, David Leonhardt, it focuses on the efforts by two economists to discover why people give, and what works in fundraising:
Not long after the 2004 presidential election, John List and Dean Karlan formed an unusual partnership, with the idea of teaching a little-known liberal group how to raise more money. Karlan, an economics professor at Yale who spent much of his time studying global poverty, was himself a liberal and disheartened by President Bush’s re-election. He had given money to this particular group in the past.
List, however, was a political iconoclast who, if anything, tilted to the right. He taught economics at the University of Chicago, which can fairly be described as the center of conservative economic philosophy, and he had recently finished a stint as the environmental expert on President Bush’s Council of Economic Advisers. When he and I were talking on the phone last month, he referred to Karlan, who is a friend of his, as “a left-wing nut” and then let out a laugh.
But List’s interest — and, in truth, Karlan’s main interest — wasn’t to help the liberal group get more money. It was to try to find an answer to a gnawing question: What makes people give their money away?
List and Karlan considered the usual answers (to make the world a better place, to see your name printed in the back of an annual report and the like) too pat, too simple — and sometimes just wrong. Over the years, whenever one of them asked fund-raisers why they did what they did, the responses were vague and unimpressive. There didn’t seem to be much empirical evidence to support the strategies employed by most fund-raisers. So the two economists wondered whether charities were wasting a lot of effort.
Among their findings: challenge grants and “matches” work to motivate givers, but only to a point:
When Karlan and List got their results, however, they realized that the conventional wisdom about matches was only partly right. The existence of a matching gift did very much matter. In their experiment, 2.2 percent of people who received the match offer made a donation, compared with only 1.8 percent of the control group. That may not seem like a big difference, but it is — more than a 20 percent gap between the two response rates, which is certainly large enough to justify making the effort to solicit a hefty matching gift.
But the size of the match in the experiment didn’t have any effect on giving. Donors who received the offer of a one-to-one match gave just as often, and just as much, as those responding to the three-to-one offer. That was surprising, because a larger match is effectively a deeper discount on a person’s gift. Yet in this case, the deeper discount didn’t make an impact. It was as if Starbucks had cut the price of a latte to $2 and sales didn’t increase.
But the ultimate issue is what these two are really interested in, why do people give:
The results of the matching-gift experiment provided List and Karlan with precisely the sort of subtlety that they hoped to uncover. It also spoke to that fundamental question about philanthropy: Why do people give? Is it really to make the world a better place, to give back to the community as a token of gratitude? Or is giving instead about something less grand, like seeing your name on a building, responding to peer pressure or simply feeling good about yourself? To put it bluntly, is charitable giving a high-minded form of consumption?
In the late 1980s, an economist named James Andreoni argued that the internal motives for giving were indeed more important than many people had acknowledged. He came up with a name for his idea — the “warm glow” theory — and it stuck. In the warm-glow view of philanthropy, people aren’t giving money merely to save the whales; they’re also giving money to feel the glow that comes with being the kind of person who’s helping to save the whales.
. . .
Andreoni’s argument was a merely theoretical one, but the experiment by List and Karlan suggested that it was correct. Donors did not, in fact, seem to do a rational analysis of how they could best help promote liberalism. And there was one more layer to their results that made the findings even more striking. In blue states — defined as those that voted for John Kerry — even the existence of a matching gift had only a minor effect. It lifted the response rate by about 5 percent. In red states, though, a matching gift increased donations by about 60 percent. For isolated liberals living in states that had just voted for Bush’s re-election, the glow that came from joining up with another liberal seemed to be much stronger. “Giving is not about a calculation of what you are buying,” Karlan said. “It is about participating in a fight.” It is about you as much as it about the effect of your gift. As much as fund-raisers say that they understand these mixed motivations, charities often continue to behave as if donors were automatons. Thus the existence of big matching gifts.
Along similar lines, Jonathan Gruber, an economist at the Massachusetts Institute of Technology, has conducted a mischievous experiment on the relationship between religious giving and religious observance. . . .
To see how typical his father was, Gruber dug into surveys that ask people about how they spend their money and their time. Sure enough, his dad was typical. When the tax code changed in the early 1990s and made the deduction for charitable giving more valuable, the average churchgoer gave more money — and attended services less often. Gruber called his research paper “Pay or Pray.”
Read it all here.