End-of-the-Year Altruists

Altruism is a fascinating, nuanced, and (I would argue) wildly misunderstood practice. We have a chapter in SuperFreakonomics, “Unbelievable Stories About Apathy and Altruism,” which explores the issue in-depth. We make a few interrelated points:

1. Because it can be so hard to measure pure altruism in the real world, many scholars brought altruism into the lab; this produced heartening results — which, alas, turn out to be quite easy to overturn.

2. Therefore, economists often talk of “impure altruism” or “warm-glow altruism,” which means that we give not necessarily out of the goodness of our hearts, but because there’s some return to our giving. We give not only because we want to help but because it makes us look good, or feel good, or perhaps feel less bad.

3. This doesn’t mean that “impure altruism” is at all a bad thing; if the deed gets done, then the deed gets done. But, as with anything in life, it is good to understand the true incentives at work.

4. U.S. citizens are easily the world’s leaders in per-capita charitable contributions, donating about $300 billion a year, more than 2 percent of the nation’s GDP. But it should also be noted that the U.S. tax code is among the most generous in allowing deductions for those contributions.

Given all this, it’s may not surprise you to learn that for online donations, the single biggest day of the year is December 31, the last day of the tax year. As Stephanie Strom writes in The Times:

New data from Convio, a software company, shows that charitable donors that use Convio’s online giving systems made 13.2 times more gifts last Dec. 31 than the daily average for the rest of 2008, and that the charities raised 22.5 times more money than they did on an average day.

Convio, which estimates that as much as 10 percent of online giving moves over its systems, also found that in the last week of 2008, the average gift size was 57 percent larger than the weekly average for the rest of the year.

Sure, the end of the year is also a time for taking stock. Sure, the holiday season may inspire a lot of us to reach for the greater good. But it would be a very interesting experiment to remove the charitable-tax deduction for a year and see what happens at the end of December.

In related news, Daniel Elfenbein, Raymond Fisman, and Brian McManus have a fascinating new working paper called “Reputation, Altruism, and the Benefits of Seller Charity in an Online Marketplace” (pdf here; abstract here). By analyzing 150,000 eBay transactions, they found that items auctioned off for charity were more likely to sell and earned more money than identical items that weren’t being sold for charity. (We witnessed this ourselves when a charitable auction of SuperFreakonomics fetched for more than $1,500 — although, admittedly, that item was unique.)

Particularly interesting in the Elfenbein/Fisman/McManus paper: “We also find that charity-tied products by all sellers are more likely to sell (and at higher prices) immediately following Hurricane Katrina, implying that consumers derive direct utility from seller charity at times when charity is particularly salient.”

Yes, today is December 31. So get off this site and go find someplace to exercise your altruism, as impure as it may be.

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  1. AaronS says:

    The only altruism that I can think of that is done without any personal interest is that sort of spur-of-the-moment action–such as jumping into a raging river to save someone–that is done without reflection.

    If we have time to reflect, even if for a moment, we do nice things because, by doing so, we somehow feel better about ourselves, life in general, or we impress the right people, etc. Or, perhaps most of all, we think it wins us a few points in God’s accounting department.

    But, to the point of spur-of-the-moment actions, I’m not sure we can call them altruistic in the sense of “purposeful acts of goodness,” but more akin to instinct perhaps. Or maybe there is just an innate goodness in us that, even when we don’t plan to, urges us to do things that are considered noble–egads! what of original sin?

    End of year? It is ABSOLUTELY tied to the tax deduction. Many church members, wanting to obtain the deduction for tithing, are sure to get in their contributions by the end of the year. I’ve done it many times myself.

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  2. Aaron says:

    It’s an important insight that impure altruism dominates the motives for charitable giving. But what I describe to my students as “benevolence utility” is not the same as “prestige utility”. They may both fit under the heading of impure altruism, but they’re different enough that they should be treated differently.

    Charities who are good at fundraising intuitively appreciate impure altruism and view the donation as a sort of exchange. They increase the value of the exchange to the donor by increasing benevolence or prestige utility with thank yous, praise, recognition, and personal success stories.

    But just because one charity gives us more warm glow than another doesn’t mean they are doing more or better with my donation. This is the reason for the accountability challenge in nonprofits today.

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  3. David Leppik says:

    @ArronS (comment #1):

    Your comment reminds me of the time I watched meerkats at the zoo. When a predator (or scary zoo visitor) approached, one meerkat would sound an alarm, while all the others hid. My wife told me that their altruistic behavior could be traced to natural selection.

    If a meerkat dies while saving enough of its siblings and cousins, more copies of its genes are preserved than if it had allowed them to get caught. The more closely related, the more genes they have in common, and the fewer relatives need to be saved to make selflessness a winning proposition.

    Or, as my wife put it, the more inbred a species, the more altruistic it is.

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  4. Robot Mistake says:

    “But it would be a very interesting experiment to remove the charitable-tax deduction for a year and see what happens at the end of December. ” What a Scrooge.

    Could it not also be measured by doubling the deduction? Might not that be the peralta exchange you are always taking about? A win-win. (hehe).

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  5. Mike B says:

    Both myself and my parents give at the end of the year primarily because it allows us to take stock of where we are giving and by making the process comprehensive we avoid double gifting or leaving someone out. So yes, the tax code helped to set the date we do this, doing it in one big go is important none the less and we would probably choose the same date even if the cutoff date was switched or non existent. Most charities typically ask for pledges based on an annual cycle so when better to send the check out then at the beginning or end of the cycle.

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  6. chris says:

    It would be interesting to see what happens to donations in Australia at the end of the year, as our tax year ends on June 30

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  7. Rick says:

    Giving because you get a charitable deduction does not not make sense economically. On a $100 donation if I am in a 38% tax bracket I am still out an additional $72 that I would have in my pocket if I had not contributed.

    I think the more reasonable explanation is procrastination. People intended to give but waited until the last minute to see how their finances for the year stand. Add to that the flurry of advertising by charities (check my inbox) which is similar to retail sales adverts (save 38% courtesy of Uncle Sam).

    So motivations for giving at the last minute:
    1) Sheer procrastination on something I was going to do anyway.
    2) Sense of getting a discount (Uncle will pick up a percentage).
    3) Rational evaluation of finances.

    In all cases though contributors are better off financially if they don’t give at all.

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  8. Thomas says:

    Why would giving make anyone but an altruist feel good? It seems to me that someone who does feel a warm glow from giving without expect anything in return he is a pure altruist.

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