What Makes a Donor Donate? A New Marketplace Podcast

(Hemera)

In our latest Freakonomics Radio on Marketplace podcast, we look at the economics of charity — specifically, what works (and what doesn’t) when trying to incentivize people to give. (Download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript.)

In Australia, Dick Smith’s electronics empire has afforded him enough success to be able to donate about 20 percent of his annual income to charity. But, he says, this kind of generosity is no longer the norm:

SMITH: When I was a young boy in the 1950’s, anyone who was wealthy was also known as a philanthropist. And they gave money away. These days we have incredibly wealthy people. I mean, our wealthiest is Rupert Murdoch, who gets a $33 million-a-year salary and also is worth about $4 billion dollars, but is not known for philanthropy in any way.

It’s the system of noblesse oblige, Smith says, that requires the wealthy to give, and he’s tried quietly to persuade his compatriots to fulfill their obligations:

SMITH: But I’ve not succeeded. I’ve completely failed. So now I’m going publicly and outing these people, and at least embarrassing them, hoping that one will break ranks and fulfill obligations of putting something back into society.

It’s too soon to say whether a healthy dose of public shame will be the kick that gets people to give, or if Smith, as one Australian writer put it, is just “a dickhead.”

University of Chicago economics professor John List has concentrated his research on the science of philanthropy, and as he tells Stephen Dubner, there are a few surefire ways to get people to give. Big-name endorsements, one-to-one matching gifts, and raffles all work wonders to lubricate cash flow. What doesn’t work? Rebates. An offer to refund money if a fundraiser doesn’t reach a goal doesn’t exactly send a signal of confidence. It’s like saying: We’re not so sure we can raise this cash, and you can’t be certain either.

Here’s where to find Marketplace on the radio near you.

Audio Transcript

Kai Ryssdal: Time now for a little Freakonomics Radio -- that moment every couple of weeks when we hear from Stephen Dubner, the co-author of the books and the blog of the same name. It's the hidden side of everything. This week -- in the spirit of the season -- Dubner weaves a tale of charitable giving -- as only Freaknomics can do.

Stephen Dubner: Today, we begin in Australia, with the story of Dick Smith.

Advertisement: You're my favorite, Dick Smith Electronics!

Dick Smith made a lot of money with his chain of electronics stores. Now, he says, he gives 20 percent of his income to charity. Smith says Australians don't give nearly enough. So he's started a campaign to convince them to give more.

Dick Smith: Now, I've written to Rupert. I know him.

That's Rupert Murdoch he's talking about.

Smith: And he has made out to me that he does give some money away, but it's done confidentially. But talking to his staff, Rupert Murdoch's staff, they say, "No, Dick, there's not a generous bone in his body. It is all about ultimate greed and just making more and more money."

Smith continued with the gentle approach, hoping a bit of quiet persuasion would make Australians open their wallets like the rich Americans you hear about so often.

Smith: But I've not succeeded. I've completely failed. So now I'm going publicly and outing these people, and at least embarrassing them, hoping that one will break ranks and fulfill obligations of putting something back into society.

As you can imagine, this shame game didn't sit so well with everyone. There've been articles.

Matthew Beeche: So, the article that I believe you're referring to was "Is Dick Smith Just A D**khead?"

Writer Matthew Beeche thinks this is a bad idea.

Beeche: I think he's stirring the pot a bit.

It's too soon to say how well Smith's shaming routine will work. But it made me wonder: when it comes to charitable giving, what does work? I asked someone who knows.

John List: I'm John List, and I'm a professor at the University of Chicago. And I focus on the economics of charity.

All right, so let's say you're trying to raise money for -- oh, I don't know, a public radio station. So John List discovered that a good way to start raising money is by telling people that you've put some of your own money in the pot already -- you know, seed money.

List: So, what we found is that the more seed money that you had not only induced more people to give, but those people actually gave more money.

All right, so seed money works -- what about the old matching-gift trick?

List: Now, what the experts would tell you is that the larger the match is, the more effective or the more dollars you will raise. And that's just flat out false.

What List found is that a 1-to-1 match works well, but increasing the match to 2-1 or 3-1 doesn't do any additional good. But here's something that is worthwhile: raffles. If you're serious about raising money, offer people a prize.

List: And just by doing that you end up increasing gifts by as much as 100 percent.

And here's my favorite. It's called the "once-and-done." It lets you opt out.

List: It's giving the control of the relationship to the solicitee.

Here's how it works. Since charities know it's annoying to constantly get solicitations in the mail, they give you a choice: if you send in some money today, and check a box opting out, we'll never bother you again.

List: People who are given the once and done proposition, they not only give more money in that particular fund-raising drive, but they do not check the box. And in future months they end up giving more money that people who never received the once-and-done proposition.

Since John List seems to know all the charity tricks that work, I asked him about Dick Smith, the Australian electronics mogul, and his shaming idea:

Dubner: Do you think that is a good strategy for fundraising? Or is Dick Smith just, as one Australian columnist put it, just a d**khead?

List: Well, I think the strategy is probably good in the short run, but I wonder in the long run if those millionaires or billionaires might flee the continent and seek refuge elsewhere. And then you have, you have a short run gain, but a long run loss.

I'm Stephen Dubner for Marketplace.

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 13

View All Comments »
  1. frankenduf says:

    Warren Buffet has already initiated a program to recruit ultra wealthy americans to join him in pledging philanthropic support to social programs- not sure of his protocol, but i would suggest giving out free t shirts to them which read ‘WE ARE THE .1 PERCENT!’

    Thumb up 1 Thumb down 0
  2. quest says:

    When we think about what has made the world a dramatically better place over the last 100 years (significantly longer lifespans, less poverty/hunger), do people think the cause has been science/health advances, entrepreneurship and free markets, or charity? Would the world be better off if super wealthy individuals invested capital judiciously in emerging markets?

    Thumb up 3 Thumb down 0
    • James says:

      Exactly. If I had a few billion to spare, I’d invest it in things that would stand a chance of improving my quality of life (and other people’s, too) while offering the chance of decent returns that I could invest in yet another such project. Electric cars, a space program, electifying the railroads, solar power, a few nuclear plants…

      And you know what? There are a number of billionaires out there who are investing in these things.

      Thumb up 3 Thumb down 0
    • J says:

      Yes, but many charities (e.g. Orbis, Smile Train) exist to get things like health advances to people who otherwise wouldn’t have access to them; not all charities are a waste of money.

      On another note, why single out Rupert Murdoch? Even if he was an Australian citizen (he’s not), he wouldn’t be the richest. And according to Forbes, his net worth is about twice what Smith says it is.

      Thumb up 0 Thumb down 0
  3. robin marlowe says:

    Hidden due to low comment rating. Click here to see.

    Disliked! Like or Dislike: Thumb up 0 Thumb down 10
  4. Ian M says:

    Shame should work. Sanctions against South Africa shamed the elitist whites into ending apartheid.

    Thumb up 2 Thumb down 0
  5. C&O says:

    We’ve found that people love a product with a cause behind it, especially during the holidays and they get the two birds with one stone effect from their dollar spent. I’m for whatever gets folks giving in the right direction!

    http://www.causeandobject.com

    Thumb up 0 Thumb down 0
    • le_fishemaque says:

      The more charity is socialized through increasing public wellfare and (more subtly) constantly raising taxes, the less likely are people to be generous. I´m not even primarily talking about the rich and wealthy, but rather about the middle class. Think about it:
      If one knows that the beggar who just asked for a dime, is already taken care of and fed by the government using money one is FORCED to pay, it might rather cause negative emotions than any sympathy towards him. What if he didn´t get anything and would actually rely on people being willing to donate voluntarily? Wouldn´t that completely alter the situation? I can´t really evaluate the situation in the US, since i´m German. In my country though, there even is some sort of saying, that the only thing poor people will do with donated money, is to buy liquor. It´s pretty clear that saying wouldn´t exist, if people couldn´t be certain of the poor beeing fed wether they donate or not. It is my honest belief that stopping any kind of public wellfare and demanding taxes for it, would lead to in fact more money being given to the poor. Not to mention many proven positive side-effects.

      About the “shaming idea”:
      It won´t work. On one hand, some people would start to donate, to avoid being socially punished. On the other hand however, probably an equal or even higher number of people would stop what little the already donate or stop thinking about starting to donate.
      Just as it is with bringing up kids: Reward beats punishment.
      So “outing” and honoring people to a great and public extend which engage themselves in charity would accomplish much more imho.

      Thumb up 0 Thumb down 0
  6. Andrew says:

    How do we have any idea what Rupert Murdoch gives? Maybe he does things anonymously. It is unfair and mean to pick on an individual when we do not know what they really do.

    Also Bill Gates gave a fortune publicly, Steve Jobs did not -Bill Gates came from a rich family, Steve Jobs did not and had to earn his fortune. Maybe Jobs gave a lot away anonymously but maybe because he started poor he had different thoughts about his fortune and used it a different way. Who are we to judge?

    Thumb up 0 Thumb down 0
  7. Lizzie says:

    What is the research behind offering raffles as an incentive to give? Have any studies actually found an increase in donations because of the raffles?

    Thumb up 0 Thumb down 0
  8. Anup Menon says:

    Interesting thought. I wonder if there is any source where I could go deeper into the findings made by the Freakonomics team?

    I would be thrilled if you could guide me to a book or white paper which has further insights!

    Thumb up 0 Thumb down 0