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.
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
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.
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.
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).
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.
Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called “Save Me From Myself.”] From my WSJ op-ed:
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.
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
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.
This is a crosspost from Consultative Group to Assist the Poor (CGAP).
There was plenty of encouraging information shared at the recent “Reaching the Poorest 2012” meeting, convened by CGAP and the Ford Foundation. Together with my fellow researchers, I was among the panelists who presented the findings of well over five years worth of randomized control trials evaluating the impact of the Graduation Model. The projects that were evaluated in Bangladesh, Pakistan, Honduras, and India showed an impact on the livelihoods of the poorest that were targeted. The results were mostly heartening – they showed that Graduation Program participants typically improved their food security, stabilized and diversified income, and increased their assets.
The benefits we’re seeing in the lives of the poorest are big and important. The results are strong evidence that the Graduation Model can work. (We’ll know even more in a couple years when we have full results from seven pilots, with more sites and longer term results to see if results sustain themselves.) One of the most intriguing, and I believe important, results is the simplest: happiness went up in the two sites where “happiness” was measured (Honduras and West Bengal). As part of the surveys to measure the impact of the program on their livelihoods, participants were also asked a series of questions on their general level of happiness and mental health. Often we talk about consumption and income as a measure of wellbeing.
Freakonomics fans will already know that financial literacy is a hot issue for researchers – it’s in everybody’s best interest to get people making better financial decisions, but frankly, we’re not terribly good at it. The natural response is that if you just explain to people how to make better decisions, they’ll do it, but as we’ve heard in the podcast, it ain’t necessarily so. Just taking rational, clear-thinking adults and explaining how to make better financial decisions makes them feel good, but doesn’t necessarily help them make better decisions.
So we wondered if we could fix the problem by backing up the process and starting early, when kids were still in school. And we decided to do it in a place where people can use all the financial help they can get – Ghana, which has one of the lowest savings rates in Africa.
I stumbled on this nifty business idea, Nanny in the Clouds, to create a market in the air for nannies. Think match.com, but for wanna-be-nannies and parents on airplanes.
A clear market failure: people on flights with kids want some help; other people on flights want to make some money taking care of kids. Social norms don’t really allow for instantaneous markets to appear (“hey, for $10 I’ll watch your kid for the next two hours so that you can take a nap” is unlikely to get many takers, I suspect). But prearranged, where the norm adheres to our expectations in the babysitter market, and we have a market helping make trades otherwise not made.
Here is how it works: Sign up on the website, put in the flight you’re going to take, and see if any parents (nannies) signed up and are looking for a nanny (parent who wants a nanny) on the same flight. Negotiate your rates directly, and pay Nanny in the Clouds $10 if the match is made.
Through Innovations for Poverty Action, I am co-Principal Investigator on a randomized trial of the impact of Compartamos, a for-profit microlender in Mexico. Compartamos was the first microcredit organization to go public, and at IPO time had a market capitalization of US$1.5 billion. Needless to say, that created a lot of buzz. Several years later, we will soon be finishing a randomized trial to measure the impact on communities in the Nogales area in northern Mexico.We will be posting our hypothesis before we do the analysis, and encourage readers to do the same, for three reasons:
A few months ago I ran a contest here at Freakonomics (results here) to predict the outcome of a randomized trial on charitable giving.
Although we are long way from realization (and it may be a pipe dream), the idea is simple: imagine a market on results from research studies. This could help not just hold people accountable for their ex-ante stated views, but also serve as a guiding tool for investors, practitioners, policymakers and donors, to help make decisions and allocate resources using the collective wisdom of markets. Of course this requires liquidity, and a certain faith in markets. Anyhow, until that dream comes true, we are doing this the simple way: running contests!
The results are in from the nudge photo contest we posted on Monday. Thirty-six out of 103 responses got it exactly right: to stop folks from urinating on the wall. Many also wrote that it was to prevent grafitti, so close but not (as I’ve been told) the exact motivation.
The first to answer correctly was, Skyjo, whose response was third overall.
Of the 36 correct answers, we randomly chose comment #63 by ann, “So that people won’t urinate on the wall as a sign of respect.”
Nudges aren’t just for humans. Here is a photo, also from Jan Chipchase, of a similar nudge with the same exact goal of reducing public urination. This time the target is dogs, not humans.
What is this photo about? It came to me courtesy of Jan Chipchase, a design guru who spoke at a great meeting last week on how to help microfinance meet the needs of clients better. As an aside, the most poignant question posed at this meeting of donors, investors, policymakers and researchers on microfinance: Why oh why did it take so long for “client needs” to be the topic of conversation? And the most important question posed: How can we go beyond understanding something about client behavior and choices and translate that knowledge to scalable policies for banking to the poor?
Anyhow, I digress, back to the contest.
Gosh that sounds so stingy. When we are charitable, we don’t want to be cheap. This is our moment of giving, of generosity, not bah-humbugness. Alas, that is exactly what we should be. If we go to a restaurant for chicken wings, what would you think of the following prices:
4 chicken wings: $8
6 chicken wings: $8
8 chicken wings: $8
Which would you opt for (assuming more is always better)? Naturally, it shouldn’t require much thought. So why not apply this to charity?
This is what Givewell does. (And I’m pleased to say, you can see the imprint of lots of research from Innovations for Poverty Action on their assessments and recommendations). You may remember I blogged about Givewell over the summer, and how there is no correlation between their assessment of organizational effectiveness and the horrid measure often used by those in search of a good charity, “general administrative and fundraising expenditures as a proportion of program expenses.”
The New York Times recently reported that using Depo-Provera, one of the most popular contraceptives in eastern and southern Africa, may increase a person’s risk of transmitting HIV. I fear this is a case for The Guardian‘s Ben Goldacre… where a study gets a bit (understatement) too much spin in the media. I first became aware of this while in Uganda and saw the following headline in the local paper: “The injectable contraceptive that could double the risk of women contracting HIV.” That sure sounds like the shot itself does something. Or could this instead be a by-product of behavior change? Huge difference if you are deciding what birth control to use!
The Times article cited a study recently published in The Lancet, which showed that women using hormonal contraception—primarily the injection more commonly known in the U.S. by its brand name, Depo-Provera—were twice as likely to acquire HIV from their infected partners, and twice as likely to transmit the virus to their HIV-negative partners.
If someone with a clipboard came up to you in the street and asked you if you secretly harbor racist views, have stolen things in the past, had unprotected sex, or some other illicit behavior, how likely would you be to tell the truth?
Probably not very. This causes havoc for any researcher who wants to study behavior that may deviate from social norms in some way. A survey technique called “list randomization” allows researchers to calculate the average response to a question in a population, without being able to identify the response of any one individual. In theory this gives people the freedom to answer truthfully, knowing that even the interviewer won’t be able to tell what they answered.
This method has indeed been used to measure hidden racism and sexism among American voters, as well as all sorts of bad behavior by American teens.
In a paper, forthcoming in the Journal of Development Economics, Jonathan Zinman and I apply this approach to the question of how the poor spend their microfinance loans.
A new iPhone app links your alarm clock snooze button to your wallet. Every time you hit snooze, you pay. To be precise, 25 cents goes to charity. Whilst I admire the charitable impulse and the entrepreneurialism here, I do wonder how effective this commitment device will be. A quarter isn’t a lot. Particularly when in a deep slumber. And the money goes to a good thing. Two slight twists on this app would intrigue me:
1) The anti-charity. A popular option at stickK.com (disclosure: Ian Ayres, fellow Freakonomics contributor, and I are co-Founders of stickK.com), is to pick an “anti-charity” such as the Bush or Clinton Presidential Libraries, depending on your particular persuasion (those in the UK can choose their most despised football team).
2) The reverse: Donate if you do NOT press snooze. Set a goal for money to raise for a charity you love. Every day you do NOT press snooze, you add money to your “to donate” pot. (Yet another disclosure: this would thus work similarly to the American Cancer Society’s http://www.chooseyou.com campaign, which is powered by stickK.com).
Soon, new warning labels on cigarette packs will have even scarier messages, and photos too. Canada has been doing this for years. Will it reduce smoking?
Here are three quick thoughts.
1) I strongly doubt it will increase the quantity of information about smoking. Folks know it is bad for you already.
2) This does not mean it won’t work. Maybe people try to forget the health risks in that moment of passion (folks know birth control helps prevent pregnancy, but similarly, when faced with impending temptations, magically forget such trivial details). Will these photos remind them at that moment of temptation? Maybe. Or maybe it will increase how often their kids or friends give them grief for it, thus creating some social pressure to stop. Naturally there is a counter-argument, that this may enhance teenage smoking, if “being bad” makes it cooler.
Last week CNN told the story here and here of Derreck Kayongo, a refugee from Uganda now living in Atlanta. His father was a soap-maker, and Mr. Kayongo is following in his footsteps, but with a nonprofit twist: he cleans and reprocesses discarded used soap bars from American hotels and ships them to Africa. He started the Global Soap Project, a U.S.-based non-profit organization, to do this.
An inspiring story of someone trying to turn waste into something good. That of course is great, and I like the ingenuity. And I admire how Mr. Kayongo has managed to navigate both the nonprofit and corporate space to figure out how to mobilize people to contribute the soap, and to coordinate delivery to people in need.
But is the best solution here really half-used soap?
How does one know whether a charitable donation will make an impact? For this we need a simple formula (easy to write, hard to apply):
Idea X Implementation = Bang for your buck
When I give talks about aid effectiveness, people often comment that they too think this is important. And to make sure they are supporting good charities, they always hone in on the charities’ finances to see how much goes to administrative and fundraising expenses. Charity Navigator, for example, scrubs these numbers and doles out stars to charities that don’t spend “too” much on operations.
Given the title of my book with Jacob Appel, More Than Good Intentions, many assume that they are speaking my language, and that I admire such focus on those numbers too.
But I do not. Those numbers do not tell you what is really happening.
Earlier I ran a contest for two free copies of More Than Good Intentions. The quick summary: we ran a randomized trial to test whether employing the use of statistics, and worse yet scientific evidence, would raise more or less money when added to a standard emotional appeal in a direct mail marketing solicitation for donations for Freedom from Hunger (a charity I respect and do research with). We split the analysis by size of prior gift. The Freakonomics contest then asked two questions:
This blog post is co-authored with Jacob Appel, co-author of my recent book, More Than Good Intentions.
Among the many questions David Gomberg and Justin Heimberg pose in their hilarious book Would You Rather is the following:
“Would you rather…
Become increasingly intelligent with the consumption of alcohol, but also become increasingly convinced you are Gloria Estefan
OR
Have a firm grasp of Roman numerals but look exactly like Weird Al Yankovic?”
Well, that’s a tough one. Seriously. It’s a classic problem of apples and oranges—or maybe, given the absurdity of the alternatives, a problem of apples and, say, cut-off jeans shorts—two things that are thoroughly incommensurable. Fortunately, those are not real choices.
When signing our book, More Than Good Intentions, Jacob Appel and I often sign “Heart + Mind = Good Giving.” Nobody argues with the premise that we should act with compassion, but be smart about it. Of course nobody would ever say they do not care about the effectiveness of the charity they support.
But in practice, does evidence about charitable effectiveness impact donations? Or does the presentation of dorky evidence turn off the emotions that cause us to donate in the first place?
Dean Karlan of Yale, and Jacob Appel of Innovations for Poverty Action answer reader questions on how to tackle global poverty.
Last week’s post about Bob Parsons, CEO and Founder of GoDaddy, and his face-off against Piers Morgan and PETA over hunting elephants in Zimbabwe generated a lot of comments. Dean Karlan offers a follow-up, choosing a winner for the best comment, and delving further into the debate on whether elephants in Zimbabwe are endangered or if their population needs culling.
Bob Parsons, CEO and Founder of GoDaddy, faces off against Piers Morgan and PETA in a recent video. The issue is simple: Parsons went to Labola, Zimbabwe and killed an elephant, and proudly posted video and photos online. Why? Parsons claims a herd of elephants were wreaking havoc with the crops of local villagers, and that the meat from the killed elephant could feed an African village (literally). I’m guessing (although I’m not sure I care, and he does not say this) that he also is a hunter, and maybe enjoyed the process of the hunt.
What if a simple ‘nudge’ could massively increase the use of safe water in poor countries?
Today is World Water Day, a day to raise awareness for something we take for granted in America: clean water. Normally I yawn at Hallmark-meets-poverty-program type publicity stunts. Reminds me of many a microcredit “awareness” campaign that paraded superstar microentrepreneurs on a stage, ignoring the need for rigorous evidence to find out if microcredit actually works.
This past weekend, Microsoft tried to do a little good (donate $100,000) and use that good to market Bing.
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