Reader Melissa Belvadi writes in with a question about preferences on fundraiser incentives:
Here in northeastern Canada, there is a very popular form of local fundraising called the “50-50.” Basically it’s a raffle, where 50% of the total money collected is then randomly given to one of the donors (odds weighted proportionately by the donation size), and the other 50% goes to the original ’cause’ of the fundraising, whether it be a local homeless shelter, a recent victim of something, or whatever that is of interest to the local community.
This strikes me as an incredibly bad deal, but a bit complicated to explain why, as it contains two components:
- As a gamble: poor expected value. I am not sure how to calculate this, but from my experience in Las Vegas where slot machines boast being set to 97% return ratios, a gamble where 50% goes to the “house” seems unlikely to be a good EV.
- As a charitable donation: poor “program ratio” — at most, 50% of my donation will go to the “program” (charitable cause) – this is considered a very poor ratio in the philanthropic world where typically 60% is the bare minimum acceptable – the BBB requires 65%.
The complication is trying to combine these two perspectives – if both are poor choices by themselves, should they “boost” each other’s value as a choice because of the extra value offered by the other, or reinforce each other’s “poorness” and make it an even worse decision?
When confronted with one of these, my response is usually to refuse to participate in the 50-50 concept, but if the cause is at all reasonable, to ask if it’s possible for me to donate directly to the cause without having 50% of my donation going to some other donor. Sometimes they say yes, but sometimes they’re so thrown off by my objections to the format, that they can’t deal with my counteroffer.
Is this just another case of “lottery is a tax on those who can’t do math,” or is there something more interesting going on here?
What are your thoughts on the 50-50 concept? Keep in mind what John List has taught us all about the tricks that make donors donate. In my view, there’s nothing at all wrong with the 50-50. I can see how some people, like Melissa, might rule it out. But I think a lot depends on how it’s marketed. Yes, as pure fund-raiser it’s inefficient; yes, as a gamble it’s inefficient; but as a hybrid, what’s not to like?