I like Indian food more than sushi. And I like sushi more than Italian food. When going out for dinner and choosing which to eat, does this mean I always choose Indian? Of course not. I’d tire of Indian food.
On my savings account, I like earning 3% interest more than 2%. And I like earning 2% more than 1%. Suppose three banks offer accounts identical except for the interest rate: would I always choose the 3% account? Or might I say, “Hey, 3% is boring, I think I’ll try 2%?” Of course not. I’d stick with the bigger payoff.
Yet when it comes to charitable giving, most people spread their money around. Why is this? And is it an effective strategy for helping people, or just a way to make ourselves feel good?
I look at this three ways:
First, we might think that even the best charity can absorb and wisely spend only so much money — that the impact of our next dollar is lower than the impact of the first. So we give to several worthy causes. And this may be the prudent approach for huge givers like Bill & Melinda Gates, Mark Zuckerberg, and Warren Buffett — but most of us don’t have to worry about that. Read More »
Economist Jeffrey Sachs, the force behind the Millennium Villages Project, is in the news as a book chronicling his efforts is released – Nina Munk’s The Idealist: Jeffrey Sachs and the Quest to End Poverty. You can read about it in the Wall Street Journal, or read excerpts in the Huffington Post. Sachs’s project is a major effort at a new way to fight poverty in Africa, as Joe Nocera, writing in The New York Times, explains:
The quest began in 2005, when Sachs, who directs the Earth Institute at Columbia University, started an ambitious program called the Millennium Villages Project. He and his team chose a handful of sub-Saharan African villages, where they imposed a series of “interventions” in such areas as agriculture, health and education. The idea was that these villages would show Africa — and the world — how the continent could loosen the grip that extreme poverty had on so many of its people.
Sachs admirably raised millions, drew attention to efforts to alleviate poverty around the world, and launched Millennium Villages in several countries. However, the reviewers hone in on the book’s discussion of many of the difficulties, such as drought, disease, locals who resisted the idea of selling their prized camels at the new markets set up for them, or locals who used the anti-malarial bednets on their goats rather than their children. Read More »
Many folks always ask me what the impact of randomized trials are on development. We at Innovations for Poverty Action and the M.I.T. Jameel Poverty Action Lab are dedicated to randomized trials to help push forward evidence-based policymaking. Yet what is the evidence that evidence shifts views? Not always so easy to do. I’ve done some work on the donor side, which I’ve reported on here before. Here is a meta-study that uses two of my studies that found fairly different results. One found that access to credit in South Africa led to increased income, the other found that access to credit in the Philippines had no discernible impact on income.
The researchers sent off about 1,500 mailers to microfinance institutions around the world, telling them about the positive study, the negative (or non-positive, technically) study, or a placebo (no mention of a study), and asked them if they wanted to participate in a randomized trial to measure the impact of their organization. They then saw which microfinance leaders responded, and whether they responded favorably or negatively. Read More »
I have two exciting (at least what I consider exciting) job openings at Innovations for Poverty Action, both helping to design and test applications of behavioral economics to savings. Please help get the word out (note, they require some specialized expertise and experience, ideally someone with consumer banking experience).
Post #1: Manager or Director of our US Household Finance Initiative (USHFI). This initiative uses ideas from behavioral economics to test ideas to improve consumer finance policies and products in the United States. The position will require managing a number of projects, but here’s one example: Both debt and savings are all about small deposits and large withdrawals. But order matters. And habits matter. Banks help us form habits to pay down debt (they’ll hunt us down if we don’t). When someone is paying down expensive (higher than they can reasonably expect to earn on any investment) debt, they shouldn’t simultaneously accumulate savings. But how can we shift someone quickly (ideally automatically) into savings right when the debt is fully paid off? The plan is to have a seamless transition moment, so that the payments continue but now go to savings rather than paying down debt. (More info here). Read More »
I have an op-ed in the Wall Street Journal in which I call for some respect for Congress’s fiscal cliff idea. Congress, back in 2011, couldn’t agree on a budget, so it came up with a way to force the hand of its future self. This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.
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Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door.
The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it). Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.” Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.
Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios
Administrative expenses tell you nothing about if the charity’s work actually does anything, or if it does, how much good it does. The proper question to ask should be “for every $1 I give, how much good is generated?” and not care about how the sausage is made. Different organizations might have different business models, and two organizations might approach the same problem, say clean water in poor villages from two different approaches – perhaps digging new wells versus cleaning existing water sources. Don’t ask who spends less on expenses like copier toner and legal costs, ask which organization will get clean water to the most people with your money. I went into this in more detail in a post a while ago, and when I compared charities’ ranks on a site that rank using overhead ratios, to a site that does thorough research on effectiveness, organizations that were rated as more effective also tended to have slightly higher expense ratios. Read More »
December is the holiday giving season for many, but there are a lot of charities competing for your dollars, and it can be hard to know where they will do the most good.
I’ve written before about why you should be wary of sites that rank charities by administrative expenses. It tells you nothing about if the actual effectiveness of a charity’s activities. The recent Freakonomics Radio episode “Free-conomics” also pointed out that many charities themselves don’t even know if what they’re doing actually works. This was one of the reasons I founded a non-profit which carries out research around the world to find out exactly which efforts to fight poverty work best.
As well as choosing which charities to support, we also make choices about how we support them. Often overlooked, this choice can be just as important in influencing what our money actually achieves. Below, two experts in philanthropy, Caroline Fiennes and Phil Buchanan, explain one crucial effect of how we give. Fiennes is the founder of Giving Evidence and the author of It Ain’t What You Give, It’s the Way That You Give It: Making Charitable Donations That Get Results. Phil Buchanan is president of the Center for Effective Philanthropy. Read More »
Instead of trick or treat, how about treatment or control? We conducted two new studies on my porch this year for Halloween. Unfortunately, the mayor of New Haven recommended that people delay trick-or-treating post-Sandy even though the neighborhood was in good shape. This caused lots of confusion, and a turnout of half of the normal turnout of 600 or so kids. So sample size is down, standard errors up.
Alas, two nice results. Both written up in one-page one-graph papers. Read More »