Hearts, Minds and Money: Maximizing Charitable Giving

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Wharton's Deborah Small discusses her research on how donors choose organizations to support.

Logic says that our charity dollars would do the most good if we donated them to organizations that were the most effective — that is, if we treated donations like investments. But it turns out that’s not how people generally behave when it comes to charitable giving: Donors tend to act more on emotion than rationality when choosing organizations to support. New research from Wharton marketing professor Deborah Small examines why that’s so. Her paper is titled, “Impediments to Effective Altruism: The Role of Subjective Preferences in Charitable Giving,” and was coauthored with Jonathan Z. Berman, Alixandra Barasch and Emma E. Levine. Small recently spoke with Knowledge@Wharton about the paper and its implications for donors and organizations.

An edited transcript of the conversation follows.

Knowledge@Wharton: It seems that many of us rely more on our hearts than our minds when it comes to picking charities. What is it about acting with our emotions that causes problems with charitable giving?

Deborah Small: The emotions we feel about causes aren’t necessarily directed towards the causes for which our dollars can do the most good. For instance, in the United States, it costs over $40,000 to train a single guide dog for the blind. People really want to support this cause. However, you can save a child’s life in much of the developing world by donating to a charity fighting malaria for under $4,000. People seem less sympathetic towards this cause or less motivated to support this cause, yet they could ultimately do more good if they chose causes for which the impact of their dollars went the furthest.

Knowledge@Wharton: What is influencing donors’ decision-making?

Small: I think people want to support causes for which they feel a personal connection and think it’s morally appropriate to do so. They think that this is the right way to choose charities. It’s not that charity is something for which there’s an objectively better answer. They think of it in much more of a subjective sense — similar to what kind of food you prefer. Do you prefer to eat Italian food or sushi? Are you a breast cancer person or are you a lung cancer person?

There’s a famous philosopher at Princeton, Peter Singer, who wrote a book called The Life You Can Save, which spawned a movement called the effective altruism movement. This movement has been spreading but in very narrow circles. It’s been spreading among economists, philosophers and people in the finance world. Those are professions in which people are used to thinking in terms of maximizing utility or return on investment of each dollar spent. But most people don’t think that way about charity. They think of it in this more subjective, personal sense.

Knowledge@Wharton: What causes them to be so subjective rather than concerned with maximizing the value of their donation?

Small: It’s not that they’re not concerned about the impact of their dollars. In fact, we find that if you give participants in a study a choice of donating to one of a number of organizations that all support the same general cause, and you provide them with effectiveness information, they will choose the most effective one. They know a good deal when they see it.

But if you give them a choice set that consists of a variety of causes, and you provide that same information on effectiveness and make it really easy for them to understand that information, those are the cases in which people ignore the effectiveness information. The reason is because they care about it, but not enough to sacrifice their own personal preferences when choosing a cause to support.

Knowledge@Wharton: Is that one of the experiments you did?

Small: That was exactly one of the experiments we did. We found that in mixed-choice sets, people chose the cause they preferred and didn’t choose the utility maximizing option. However, if all of the causes in the choice set were the same, then people would choose the one that had the greatest impact.

“The emotions we feel about causes aren’t necessarily directed towards the causes for which our dollars can do the most good.”

Knowledge@Wharton: Did any of your research outcomes surprise you?

Small: This is consistent with our general theorizing and with things I found in the past. I guess what surprised me the most is that in this study, we made it so easy for people to choose the “right” answer. For instance, we gave them a rating scale of charities and described the rating scale as higher scores mean this charity does more good. We made it really easy for participants in the study to get the answer right — and they just don’t, for the most part, use that information. I think what we learned is they just don’t see that information as relevant for this type of decision. They see it as very relevant for a decision between financial investments, but not so relevant for this charity decision.

Knowledge@Wharton: What are some of the practical implications of this research? Is there room to use your emotions or go with your heart in making these kinds of decisions?

Small: The strict version of the effective altruism movement would say no. According to that logic, you really should discount your own personal feelings, your attachments, your emotions, your personal experiences. We find in other research that people give a lot to causes for which they have personal experience. For instance, if you had a family member or a friend who died of a particular illness, that is a strong predictor of where people choose to give. They want to give to support charities for that illness for which they have personal experience. The effective altruism movement says this is not ethically appropriate.

But we might start to think about a compromise approach to charitable giving in which we recognize the human side of this as well as the desire to maximize effectiveness. That compromise version might be to look for causes that you personally care about, because if we ignore that altogether then people might not be motivated to give money at all. If we’re more lenient on that aspect and let people choose the causes they support, but then really leverage effectiveness information to help them find the best organizations within that cause, then we can at least approach something that the effective altruists are looking for.

Knowledge@Wharton: What can the charities do better to help consumers?

“Charities need to consider both doing the right thing and marketing to human beings who aren’t always rational actors.”

Small: Charities need to consider both doing the right thing and marketing to human beings who aren’t always rational actors. I think that charities have an ethical obligation to be transparent to their consumers about the impact they can provide and the cost-effectiveness of the services they deliver. Yet if they don’t market towards donors’ hearts, then they’re not going to be a competitive organization. If you want to think of them as being like a business, they have to compete. There are thousands of charity options that exist for consumers, so they need to recognize the importance of marketing the things that people actually care about. They care about personal stories. They care about relationships. They care about the more humanizing aspect of charity, not just crunching the numbers.

Knowledge@Wharton: What’s next for this research?

Small: I keep observing the effective altruism movement, and it keeps giving me new ideas for research questions. Wharton doctoral student Josh Lewis and I recognized that oftentimes charities present effectiveness information in terms of the cost of a unit of impact. That would be something like the cost of saving a life, the cost of a mosquito net, a pair of shoes, a pair of eyeglasses — you can go on and on. The problem with that is that when people see the cost of a unit, they want to give exactly that amount. If a malaria prevention mosquito net costs $1, donors tend to give $1. If it costs 50 cents, they give 50 cents. As a result, when the cost of the malaria net is cheaper, they’re actually giving less. This is a case in which they could do more good.

You see there’s a bias that results in an ineffective pattern in giving when you’re providing that form of cost-effectiveness information. We discovered a way to remedy this bias, which involves reframing the information. Rather than saying the cost of a mosquito net or any unit of impact, we reframe it as the number of units of impact per dollar amount. So, for $1 you can get a mosquito net in the first case, or for $1 you can get two mosquito nets. When you reframe the same information in that way, you find that people are making more effective choices.

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