Thursday, 02 April 2015 09:10

Science Can Answer Big Questions

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This is a repost of the article published on The Chronicle of Philanthropy on March 29th 2015. You can read the original article here

Fundraisers know that some appeals work and others don't. Sometimes conventional wisdom offers answers about why, but are those the right answers?

Now, using the tools of a comparatively new academic field, we are learning exactly why some of that wisdom is right - and some of it is plain wrong. These studies lead to a better understanding of why people give again and again. The longer-term aim of scholars working on this research is to help charities raise more to accomplish more good in the world.

At the Science of Philanthropy Initiative, which I lead at the University of Chicago, we’re working with nonprofits to take the economic theory out of the university lab and test what works in the real world. Our approach involves an exciting area of study known as behavioral economics. Behavioral economics is not specifically about maximizing returns, although books like Nudge and The Why Axis show what works to increase how much people save for retirement or the number who enroll in health-insurance programs or adopt energy-saving technologies.

Mostly, though, what we look at is how people make choices - and how we can encourage them to make choices that benefit society.

John ListBehavioral economics starts from the premise that behavior is not purely rational or entirely random. All of us operate within constraints while we seek any objective, whether it is picking a restaurant for a family dinner, finding a life partner, or making a gift to charity. There are limits on what we can do, so each individual balances (often unconsciously) personal aspirations within the environment.

Using the tools of behavioral economics, we gather data by combining experiments in the laboratory and work with nonprofits in the real world. . Each piece of research explores what happens when we change a specific fundraising approach. We alter the constraints for a given altruistic act and measure the change in giving. Or we alter the environment slightly to explore how different information changes the way individuals make decisions.

For instance, when we inform donors that someone will match their gift, they like the fact that they give just $100 for a charity to get $200. That is a nice one-time benefit for the donor and a good result for the charity, but it does not change the donor’s long-term motivations to give.

To change the person’s charitable objectives, you probably have to change how people view the charity or its beneficiaries. Many nonprofits use stories or pictures to convey the need and the capacity of an individual donor to make a difference. But just why do stories and pictures work? Are they all equal or are there approaches that help bridge the gap between the donor and the intended beneficiary more effectively?

In one of the projects the Science of Philanthropy Initiative supported, researchers Nichole Argo and Tamar Krishnamurti at Carnegie Mellon University worked with the nonprofit Benevolent to answer some of those questions.

Benevolent works with social-service charities to find people in need, vet the legitimacy of their desire for charitable aid, and then tell their stories using essays and video. Donors can go online to read about each individual and decide whom to support.

Ms. Argo and Ms. Krishnamurti found that contributions arrived more quickly when recipients appeared clearly in images (with good lighting and an uncluttered background) and showed their best appearance (good grooming and smart clothing choices). Donors gave more rapidly to recipients who narrated a story of personal crisis and specified a concrete need that, if fulfilled, would allow them to achieve a short-term goal. All of these aspects - a beneficiary's appearance, the story of that person's progress and specific need - help overcome the psychological distance between the donor and the recipient. An example is a man who sought $600 to buy the tools he needed to do carpentry and with that job he would support his family and help others.

Another way to change how much people give is to help them understand what other people around them are doing.

One of our other studies looks at whether donors seek to "avoid shame" (by giving even small amounts when charities publish a list of all of their supporters) or "gain prestige" (by giving higher amounts when only the top donors are listed).

So far, in the lab, we find that more donors give and charities raise larger sums when they share the entire list. Charities often publish the highest gift amounts, recognizing that for some donors, prestige is associated with making larger gifts. In some settings, publishing all gift amounts might help raise more. We do not know yet what the impact would be for very large donor lists, but we hope we can find a charity willing to let us test that theory.

Our work with charities shows repeatedly that incentives like tax benefits and matching-gift challenges matter to donors. Statements that remind donors that they "get" something for giving, even something intangible like a "warm glow," raise more money when compared with statements that focus only on the social good a charity can achieve with a donor’s money.

The research we do with nonprofits is not the same as a nonprofit organization’s A/B tests, although there are similarities. We set out to explore a very specific question and alter just one or possibly two conditions. This approach allows us to go beyond A/B testing and permits us to answer why A is better than B.

For example, research we supported explored whether a single line — "Warm your heart" or "Make Alaska better" - raised more. Because of the random selection of people getting each card and the careful design with only one line different in the two cards, Michael Price of Georgia State University and the team at Pick. Click. Give in Alaska could see clearly that the "Warm your heart" message lifted giving by raising the response rate and the average donation. We find repeatedly that donors do give more and are more likely to give when they are told they will benefit, even indirectly through their "warm glow" feelings.

Experiments work on a large scale, but before we do them we usually do our work in a more controlled setting.

In one of our projects, Szu-Chi Huang of the Stanford Graduate School of Business and Ted Raymond of Allegra Marketing (for the United Way) tested whether when we are surrounded by people who are younger than we are, we feel subjectively older and focus more on others’ welfare than on our own.

They found first in the lab and then in the real world that when people perceived themselves to be older than others around them, they gave more. United Ways and other nonprofits could apply this finding in their print materials, for example, using different text or pictures to highlight younger beneficiaries, volunteers, or even donors.

As we look at the next step in our work to increase how much people give, we realize we must look at impact. That is what major donors say they want, what all of us want along with the "warm glow" of doing the right thing.

We also wonder how we can apply the tools of behavioral economics to improve charitable-program effectiveness. With improved effectiveness, would donors give more? Could programs achieve more impact with the same in contributed funds? Might there be aspects of character development and motivations that can be supported in childhood that will help those children grow into more charitable adults?

These are big questions with a big stake for society. We look forward to bringing scholars and nonprofits together to find answers that are backed up by science, not just received wisdom.

Photo Credit: Jason Smith, University of Chicago

Last modified on Friday, 03 April 2015 10:45
John List

John List is the Homer J. Livingston Professor and Chairman in the Department of Economics at the University of Chicago. He also holds a position as a National Bureau of Economic Research Associate. John has previously served as a Senior Economist on the President’s Council of Economic Advisers (2002-2004).

John has pioneered field experiments as a methodology for learning about behavioral principles that are shared across different domains. He has published over 150 peer-reviewed research publications, providing insights into charitable giving, public goods provision, and valuation of non-marketed goods and services. John received the 2010 Kenneth Galbraith Award and the 2008 Arrow Prize for Senior Economists for his research in behavioral economics in the field. Overall, data John has collected has provided insights into incentives for education, pricing behavior, discrimination in the marketplace, the valuation of non-marketed goods and services, public goods provision, and importantly, charitable giving.

As the PI of SPI, John plans to lead the team in generating knowledge in the field of philanthropy and bridging the gap between research and practice by forming collaborative partnerships. John’s research on philanthropy has been showcased in various media outlets such as the Wall Street Journal, Chronicle of Philanthropy, and the New York Times.