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Navigating charity’s fast and slow lanes

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Published : 2014-05-28 20:42
Updated : 2014-05-28 20:42

Imagine that you’re running a charity. Suppose you have evidence showing that your charity is highly effective ― that you are really making a difference in people’s lives. In your fundraising campaign, should you emphasize how effective you are?

In a new study, Yale University economist Dean Karlan and Clemson University economist Daniel Wood offer a surprising answer. It turns out that large donors respond positively to statistical evidence of effectiveness ― but small donors respond negatively. There’s a major lesson here for the charitable sector, and the lesson has implications for other activities and institutions, including political campaigns, health education and various businesses.

Many people give emotionally, and almost automatically. For some of us, giving produces a kind of warm glow, and we give in part because we want to enjoy that glow. To warm-glow givers, numbers don’t much matter. If a charity wants to reach them, it would probably do best to provide photographs or a moving narrative about a needy child or family.

Other people give money because of their judgment that, all things considered, certain charities will significantly help people. Donors of this kind are willing to do at least a little calculating. They won’t necessarily do a lot of homework, but they care a lot about whether their money is being put to good use.

The distinction between the two kinds of givers corresponds to the psychologists’ distinction, elaborated at length by Nobel Prize winner Daniel Kahneman, between two ways of thinking: fast and slow. Fast thinking is intuitive and often emotional. When people are thinking fast, visual images are important. Slow thinking is more deliberate. When people are thinking slowly, numbers count.

Now let’s turn to the recent research. To test the effects of providing information about a charity’s effectiveness, Karlan and Wood worked with Freedom from Hunger, a nonprofit organization that offers advice to institutions providing microfinance in developing nations.

In a direct-mail marketing campaign, Karlan and Wood provided thousands of people with an emotional appeal, describing an old woman named Sabastiania and explaining how Freedom from Hunger helped her. “She’s known nothing but abject poverty her entire life. Why on earth should Sebastiana have hope now?” The answer is that because “of caring people like you, Freedom from Hunger was able to offer Sebastiana a self-help path toward achieving her dream of getting ‘a little land to farm’ and pass down to her children.”

Karlan and Wood provided an essentially identical appeal to thousands of other people, but with a crucial twist in the form of an additional paragraph about scientific research on the impact of Freedom from Hunger. The paragraph reported that in Peru, an independent study found that “women who were offered our Credit with Education program had 16 percent higher profits in their businesses than those who were not, and they increased profits in bad months by 27 percent!” The paragraph also noted that the independent study involved “a randomized evaluation, the methodology routinely used in medicine, to measure the impact of our programs on things like business growth, children’s health, investment in education, and women’s empowerment.”

The new paragraph had a major, beneficial effect on large prior donors (defined as those who had given more than $100 to Freedom from Hunger). Frequent donors of large gifts showed a 2.2 percent increase in their likelihood of giving ― and the average amount they gave jumped by $12.98. Across large numbers of people, those relatively small increases add up.

By contrast, small donors became less likely to give, and they donated less. Frequent donors of small amounts showed a 1.4 percent reduction in the likelihood of giving and a reduction of 81 cents in their gifts. Across large numbers of people, those relatively small decreases also add up.

Overall, the gains from large donors and the losses from small ones essentially canceled each other out, so that there was no net effect on the average donation.

Karlan and Wood contend that large donors are more likely to be slow thinkers, focusing on the actual effects of their donations, whereas small donors are faster thinkers and more likely to be reacting emotionally.

The researchers know that this is not the only possible explanation of their findings; for example, large donors might be more educated and therefore more likely to focus on statistical evidence of a positive impact. But their preferred explanation is consistent with a growing body of evidence that when potential donors are presented with statistics and numbers ― for example, how many people might be saved or are at risk ― their willingness to give tends to decrease.

In recent years, many people have been trying to evaluate the real-world effectiveness of various charities. These evaluations are important, but if a charity wants to attract small donors, it might be a mistake to highlight them. For charities, as for institutions of many different kinds, the central lesson is clear: Statistical information might have a major impact on some people, but to others, it might be irrelevant ― or even counterproductive.

By Cass R. Sunstein

Cass R. Sunstein, the former administrator of the White House Office of Information and Regulatory Affairs, is the Robert Walmsley university professor at Harvard Law School and a Bloomberg View columnist. ― Ed.

(Bloomberg)

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