The irrationality of charity

Featured image: Howard Lake/Flickr

When charitable donations are concerned, we seem to be even more irrational than otherwise

What is an acceptable salary for a CEO who works in the charity sector? For the Daily Mail, a British tabloid newspaper, £200,000 would seem to be way too much. Earlier this month, they published a typical rant about JustGiving.com, an internet platform to make collecting donations easy for individuals who take part in sponsored events and small charities that don’t have their own card facilities.

In it they berate the organization for ‘raking off £20 million a year’ and for paying its staff an average of annual salary of £60,000. Soon after, many Twitter users voiced their disapproval with JustGiving’s practices. Not all of them were typical Daily Mail readers – this is what ITV journalist Robert Peston tweeted:

Even some charities tweeted suggesting they’d take their business elsewhere.

Charitable donations are a most intriguing subject for anyone fascinated by the rationality or otherwise of our behaviour. For a start, giving itself seems puzzling. The kind of altruism that has us simply donating our money away seems the starkest violation of the self-interested, utility-maximizing, rational homo economicus.

If you drop the narrow perspective and look a bit further than that axiom, however, there are plenty of entirely plausible and indeed rational explanations. But that doesn’t mean we’re not irrational when charitable giving is concerned.

One of the most compelling demonstrations is Peter Singer’s Drowning Child thought experiment:

Imagine you’re walking through the park and see a small child in a pond. The water is shallow enough for an adult to be able to stand up comfortably, but deep enough for a toddler to drown. There’s nobody around so you’re the only person capable of saving the little kid. Yet you’re wearing an expensive pair of shoes and your best suit, worth in total a good few hundred pounds. What would you do? Let the child drown to spare your attire? Or would you get into the water and save the toddler, and ruin your shoes and suit?

As Singer says, most people at least say they wouldn’t hesitate to rescue the child. Yet if we are prepared to sacrifice a couple of hundred pounds to save a drowning child in the park, how come we’re far more reluctant to donate a similar amount to save a starving child thousands of miles away? Would a rational person consider the life of one unknown child so much more worthy than that of another unknown child?

One explanation for this is the identifiable victim effect. We appear to be much more easily engaged when there is a concrete beneficiary of our charity than when they are abstract. Some charities use this explicitly. Plan International, for example, invites people to sponsor individual children, providing detail about their lives and facilitating direct corresponding between the donor and the recipient (even though the money donated doesn’t go directly to the child in question). And many other charities use personalized material to nudge prospective donors to open their purses.

There is even more intriguing charity-related behaviour. Nichola Raihani and Sarah Smith examined publicly visible donations (on a site like JustGiving.com!) to look for evidence of competitiveness among donors. They found that male donors donate significantly more when the fundraiser is an attractive female, and when they are responding to a large donation made by another male donor. (The difference is a factor 4.) There was no such competitive behaviour among female donors giving to attractive male fundraisers.

But perhaps more irrational still is our unease with the notion that only a fraction of our donation eventually reaches the deserving recipients. This is what appears to be behind the outrage of the Daily Mail. There are two concepts in conflict here. On the one hand, we want the cause we support to obtain as much money as possible. On the other hand, we don’t want part our donation to be ‘wasted’ on other activities, like administration, or worse still, the CEO’s salary.

This is a form of mental accounting that can trip us up in other situations too. Many people value ‘free shipping’, saving for example $6.99, more than a $10 discount on the price of the item. We consider delivery charges a form of waste – we’re only interested in the item. Likewise, we resent having to pay a ‘booking fee’ for concert tickets, or to pay a surcharge for using a credit card.

But there is probably also an element of fairness at play here. In 2008, On Amir, Dan Ariely and Ziv Carmon conducted an experiment in which they assessed the willingness to pay for recovering the data of a faulty computer disk. They looked both at the value of the data, and the amount of time spent by the technician to recover it. To reclaim 5 years’ worth of data, the participants were willing to pay 67% more for the recovery if it took 12 hours rather than 5 minutes. In the case of 1 month’s worth of data that difference was nearly 150%. It appears we would feel seriously ripped off if we were charged a large amount of money to recover valuable data if it took very little effort. We would feel exploited.

datarecovery

It is probably this kind of emotion that most fuels the indignation about the fees JustGiving charge (and the salary its boss receives). It is unfair for people to profit from our generosity by taking a slice of our selfless sacrifice.

Of course, most of our decisions are driven by emotions. We choose what we feel is best. But if we feel conflicting emotions, weighing them up can be very difficult. We feel good if a cause that is close to our heart gets lots of money, but we feel bad if that is only part of the total that is donated. If the latter dominates our thinking, we risk demanding that, in the words of Anne-Marie Huby, the co-founder of JustGiving.com, “a good charity should be a poor one, run on a shoestring.”

Professional fundraisers and platforms like JustGiving.com help increase the amounts donated to charity by a much larger margin than their costs. But if our decisions are guided by the negative emotion that comes from the perception that a slice of our donation is wasted and channelled off unfairly, we ultimately damage the cause we find important.

And that is as good a definition of irrationality as any.

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Emotions and tagged , , . Bookmark the permalink.

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