Why is it that charities seem to spend more on sentimental TV commercials featuring sad-eyed children in need of donations than on demonstrating results? What different choices would donors make if offered more information about what their money helps to achieve?
Clair Null, a researcher at the University of California, Berkeley, explored these questions through a groundbreaking study examining what motivates donors to give. At a Jan. 23, 2009 event held at the Center for Global Development in Washington, D.C., Null discussed her findings' implications for the development community.
Participants in the study - who were members of Kiwanis, Lions, or Rotary clubs - were asked to divide a $100 donation among three well-known development charities, namely Care International, Mercy Corps and Oxfam. Participants were initially told that a third-party donor would match any donation at a uniform rate. Most participants decided to give to all three charities, often dividing up the donation in equal portions.
Then came the twist: participants were told that the third party would match a donation to a particular charity at a higher rate than the others. Surprisingly, most participants still chose to contribute to all three charities, even though doing so would result in a lower overall contribution when the matching funds were added. Null calculated that this trend resulted in a 25 percent average loss in terms of the forfeited "social surplus," i.e., inefficiently allocated resources.
Why this preference for variety over efficiency? Null conducted further analysis and identified two main reasons.
Null found that among those who allocated their donation inefficiently, roughly two-thirds were motivated by "warm glow" or the fuzzy feeling that some donors get by donating to as many charities as possible. Warm glow donors prefer to spread their donations to feel that they are part of many charities, even if this results in less overall funding to a particular cause.
According to Null, the remaining participants who chose inefficient ways to divide their donation were motivated by risk aversion, the reticence to "put all one's eggs into a single basket." Risk-averse donors were concerned that the matching funds would not be delivered, a scenario which was assigned a 20 percent probability throughout the experiment.
Null also found that relatively few participants were willing to purchase information that would enable them to allocate their donations more efficiently.
Given this predilection for inefficient giving patterns among donors, Null postulated that there is little incentive for charities to demonstrate efficiency in their appeals to "warm glow" donors, which highlights the need for the government to prevent fraud. She also argued that private charities may wish to market aid evaluations that target risk-averse donors.
Some questions were raised about the study's relevance to the real world, where many different charities vie for funding and donors may take a long time to weigh their decisions. Still, as cash-strapped charities compete over a shrinking donor pool, understanding what motivates people to give is likely to become all the more essential to fundraising.