by Gneezy, Uri
People like to play follow-the-leader this way. Indeed, our research found this follow-the-leader component is important to donors—so important that it completely overwhelms the free-rider effect. How far one can push this argument is still an open empirical question. For example, if we announced that we had already raised 99.9 percent of what was required, we suspect donors would not have given much. But that’s just our hunch.
Putting this follow-the-leader effect into action isn’t easy, though. We told some letter recipients that if we failed to raise all the money, we would send them their donation check back. You would think a rebate would boost giving, because there’s no free-rider problem and it has a follow-the-leader enticement. But when we crunched the numbers, we found that offering a rebate didn’t change giving at all.
Just to make sure we could be more certain of our results, we took our idea to the Sierra Club of Canada, a long-standing organization with a donor base and a history of running three to four mass-mailing solicitation campaigns a year. The British Columbia chapter of the club was willing to let us in. So along with our colleague Daniel Rondeau, we ran another experiment asking 3,000 households to help the Sierra Club expand educational offerings to K-12 students in the area.7 We told half the letter recipients (the control group) the fundraising goal was $5,000; we told the other half that $2,500 of the $5,000 had already been raised. Did planting the seed work this time around?
You bet it did. We raised a total of $1,375 from the control group, and $1,620—an 18 percent increase—from the seed group. Seed money, again, worked in the direction of the prediction.
The net-net of all of this? Many nonprofits appear to be terrified of announcing higher seed levels, because they worry about the free-rider effect. We think that these organizations simply don’t understand that donors want to play follow the leader. In fact, the follow-the-leader effect is so powerful that it overrides the free-rider effect.8
The Snickers Equation
While some folks on the fringes of the right wing see National Public Radio (NPR) as one of the places where liberals gather to launch socialist plots, it actually is a pretty good organization and, for many, even a vital part of the day. As NPR likes to point out during its pledge drives, it gives you not only great national and international news coverage, but also fun shows such as A Prairie Home Companion and Wait Wait . . . Don’t Tell Me!
Still, if you’re a commuter who likes to listen to the soothing voices of the station’s local hosts, you probably know the worst weeks to be out on the road are during NPR’s seasonal pledge drive. Each day of pledge week, the otherwise gracious hosts transform themselves into anxious pleaders who use a number of different ploys to increase giving. One of the favorite schemes of these fundraisers is to say, “If you donate $100 now, you can double your donation with a matching grant from a generous donor!”
Such a pitch makes perfect sense, economically speaking. Normally when you contribute to a charity, every dollar you give translates into just one dollar for the cause. But when you’re told that if you pay $100, the charity will actually get a gift of $200, you might think you’re being offered a two-for-one special, and that’s exactly what fundraisers want you to think.
Think of it this way: if you can get either one Snickers bar for $1 or two for $1, you’ll go for the two-for-one deal. This is Economics 101. And if this tactic works for grocery stores, it should work for fundraisers, right? The intuition is so strong in the fundraising community that the fundraising bible warns that one should: “never underestimate the power of a challenge gift” and that “obviously, a 1:1 match—every dollar that the donor gives is matched by another dollar—is more appealing than a 1:2 challenge. . . . and a richer challenge (2:1) greatly adds to the match’s attractiveness.”9 Are matching grants really the equivalent of a two-for-one special that we find in grocery stores and shopping malls? Or, put another way, do matching grants really work the same way discount sales do in the consumer world? After all, big donors have relied on this idea for years. For example, an anonymous donor recently gave Drake University $75 million and stipulated that the school should leverage that money by offering three-to-one and two-to-one matching grants to solicit more money from donors. In other words, the donor told Drake to multiply the gigantic sum of money by using the Snickers bar idea, on steroids.
But do matching grants like this really work? To find out, we again joined forces with Yale University’s Dean Karlan, a left-of-center economics professor who was also interested in investigating the question of what makes people give.10 Following George W. Bush’s 2004 presidential election, Dean wrote to a particular liberal nonprofit organization he admired, saying that we wanted to run an experiment with 50,000 of its supporters.11
The nonprofit was glad to have our help with their fundraising drive, so it accepted our offer of help. Working with their people, we designed an experimental fundraising campaign. One letter (the control) simply asked for contributions and didn’t mention a match. The other letters looked like different versions of the following:
Matching Grant
NOW IS THE TIME TO GIVE!
Troubled by the continuing erosion of our Constitutional rights, a concerned member has offered a matching grant . . . to encourage you to contribute at this time. To avoid losing the fight to defend our rights, this member has announced a [$1, $2, $3] match for every dollar you give. So for every $1 you give, we will actually receive [$2, $3, $4]. Let’s not lose this match—please give today!12
We randomly divided people into four groups: three match levels and one control group. People in Group 1 received a 1:1 match invitation telling them that for every $1 they gave, the organization would receive $2. Those who received the 2:1 match letter were told the organization would receive $3 for every $1 they donated, and so on.13
Then we sent out the letters and waited. The expected part was that the match worked: when all the responses had come in and we looked at the data, we found that those people who received a match offer were roughly 20 percent more likely to send in money. That is, we increased our response rate by 20 percent by just having a match in place. So it definitely looked like the promise of a matching grant worked, and worked well.
But, then the surprise came: the size of the match did not matter at all. A 3:1 matching grant offer was no more effective than a 1:1 challenge. And the 2:1 challenge did about the same as the 3:1 and 1:1 challenges. In light of the strong anecdotal evidence that higher match levels are better than lower match levels, this evidence from thousands of observations was shocking.
We found something else, too. The match worked much more effectively in “red” or conservative-leaning states than “blue” or left-leaning states (remember that the nonprofit was a liberal one). Why might that be the case?
The short answer is that birds of a feather stick together. Let’s say you are a liberal in the so-called People’s Republics of Massachusetts or Vermont where your senators and congressmen agree with you. You receive a letter from a progressive organization asking you for money. You are more than willing to hand money over, with or without a signal of the quality. Regardless of the organization’s credentials, you decide to help. “Everyone around me is sending in money, so I will too,” you reason. To you, the left-wing organization soliciting left-wing prospective contributors for money in blue states, there isn’t a lot of need for a quality endorsement.14
But birds who aren’t of a feather shriek louder. The match served a different, and important, signal to liberals in red states. If you are a leftie living in Mississippi, Tennessee, or Arizona—or a conservative in California, Oregon, or Vermont—you feel outnumbered. You rage against the machine, but you are not so sure that the charitable organization is high quality. Lo and behold, someone comes along and says “Join my fight; your friends out there in (enter your red or blue state here_________) are fighting hard and giving a lot to the cause.” Given that you spend considerable time feeling at odds with the ruling powers
(or your neighbors), you will be more responsive when you know that your contribution supports a good cause. It’s like being on the side of the idealistic students and the starving paupers in Les Misérables or John Gult from Atlas Shrugged, if you’re persuaded otherwise—there’s a sense of pride and glory in what you are doing.
A theory from social psychology lends itself well to this reasoning. As the theory goes, individuals from a minority group have a stronger sense of social identity. Accordingly, the social cue of the matching grant acted as a catalyst to trigger people’s “peer identity.” Thus, the “signal” generated by the leadership gift is likely quite effective in engaging those in the minority political group.
Now, if people give because giving to charity is the right thing to do or believe in the charity’s purpose, what do the politics of their state have to do with their giving behavior? Our research was beginning to hint at something: charitable giving is more connected to ego-identification than we might think. This notion of charitable egotism has a name: the “warm glow” theory, made famous by our friend James Andreoni.
The warm glow comes from feeling good when we donate; helping the local elementary school, supporting the food bank, saving the rainforest, or protecting harbor seal pups raises our self-esteem. Surely, a component of altruism motivates giving, but a warm glow (a.k.a. “impure altruism”) is also a motivator. New York City mayor and billionaire Michael Bloomberg put it eloquently: “We’re put here on this earth to share and to help each other. And nothing I will ever do—or you or anybody else that’s generous—will give you as much pleasure as you get when you look in the mirror just before you turn off the light and say, ‘Hey, you know, I’m making a difference.’”15
In the end, matching grants aren’t at all analogous to offering two or even three Snickers bars for the price of one. Our experiments led us to the conclusion that donors do not behave like customers at a fruit counter. Donors want to know their gifts are an example of doing the right thing. They are wary of being duped. But every day people also give because they like feeling that warm glow.
So what does this finding imply for all the hosts of public radio, the dapper gentleman from that animal-protection organization, nonprofits, marketers, and businesses in general? Our advice to them: stop relying on hand-me-down formulas or assuming that selling donations works like selling Snickers bars. Matches do work—remember, any match looks better than no match at all—but our research shows that a one-to-one match works just as well as a two-to-one or three-to-one match.
Above all, it’s important to appeal directly to people’s appetites for the warm glow by showing them how good they will feel after donating. When charities (and marketers) recognize that feature of human motivation, they’ll be able to come up with a hundred new and interesting ways to get Mr. and Ms. Citizen to open their wallets.16
The Beauty Effect
On a chilly Saturday afternoon in December 2005, Jeanne, a bright, energetic junior at East Carolina University (ECU), trotted up the walk of a suburban home in Pitt County, North Carolina. Jeanne was equipped with a professionally embroidered shirt emblazoned with the name “ECU Natural Hazards Mitigation Research Center.” She wore a badge with her picture, name, and solicitation permit number. She also carried a clipboard and several brochures. She knocked, and a middle-aged man opened the door.
“Yes?” he said, eyeing her.
“Hi,” she said, smiling brightly. “My name is Jeanne. I’m an ECU student visiting Pitt County households today on behalf of the newly formed ECU Natural Hazards Mitigation Research Center.”
Jeanne went on to explain the center was dedicated to providing support and coordination in the event of natural disasters such as hurricanes, tornadoes, and flooding—events not unfamiliar to the area.
The man nodded. Jeanne widened her smile. “To raise funds, we are conducting a charitable raffle. The winner will receive a $1,000 prepaid MasterCard. For every dollar you contribute, you will receive one raffle ticket. The odds of winning this raffle are based on your contribution and the total contributions received from other Pitt County households. The winner will be drawn at noon at the center on December 17 and will be notified and the results posted on the center’s website. All proceeds will fund the Hazards Center, which is a nonprofit organization. Would you like to make a contribution today?”
Of course, the man who opened the door had no idea Jeanne was a double agent. Yes, she was trying to raise money for the center. But she was also part of a bigger field experiment involving dozens of college students like her who were trained and paid to knock on the doors of 5,000 households in Pitt County. Some of the students just asked for money, but the others, like Jeanne, added the raffle bait. All of them were part of our study to see whether the raffle would increase donations to the center.
Interestingly, we found that the lottery treatment (which we called “the lottery effect”) raised roughly 50 percent more in gross proceeds than the request for donations alone. We found that more people participated in the lotteries; roughly twice as many people opted to donate compared to the treatment where we simply asked for donations. Lotteries provide fundraisers with a tool to generate “warm lists,” or a larger pool of active donors to draw from in future fundraising drives. In this spirit, lotteries give the fundraiser a “double dividend”—a chance to earn more funds immediately, as well as establishing a large warm list.17
We also discovered something else that was very predictable: the more attractive the solicitor, the bigger the donation received. We call this “the beauty effect.” To obtain measures of physical attractiveness, we took digital photos of each solicitor during the initial interview to prepare an identification badge.18 We then allocated the photographs into files that contained the pictures of three other solicitors. The files were printed in color and independently evaluated by 152 different observers (undergraduate students from the University of Maryland–College Park).
The observers rated solicitors like Jeanne on a scale of 1 to 10 for attractiveness. Jeanne was rated high at 8, and she raised about 50 percent more than an equally qualified woman who rated a 6. Perhaps not surprisingly, the women raised the most money when a male answered the door. Jimmy was also scaled to be much more attractive than Stan, and he raised more money than Stan; but women raised more than the men did.
What was interesting to us was not that there was a beauty effect—it was the size of the beauty effect. We found that the “beauty” effect was about as large as the “lottery effect.” That is, just by changing the solicitor’s attractiveness from a 6 to an 8, we could increase donations by as much as adding the lottery.
Beauty aside, does a raffle ticket really lead to any long-run meaningful change in giving? Years after this first field experiment, we revisited the solicited households with another.19 We found that people who were initially attracted by the lottery continued to give at a much higher rate. However, the guys wowed by Jeanne’s beauty the first time didn’t continue to give unless another, equally attractive solicitor came to their door.
It came as no shock to us that the beauty effect did not lead to a lifetime of donations—after all, a visit a long time ago from a pretty face per se is no reason to continue to support a cause. We found, however, that people who gave because of the raffle continued to give for years to come. This is a lot like what we found in setups in which the participants felt the charity was invested in the outcome (more on this in a moment). The raffle, like an initial seed-money investment, signals that the charity is “giving something to get something.” It also signals that the charity is a durable organization.
Murders, Opt-Outs, and Other Temptations
In a February 2011 episode of The Daily Show with Jon Stewart, Stewart, playing the straight man, asks the show’s resident expert on everything, John Hodgman, to offer a solution to the big, tough problem of balancing the US budget. After suggesting we reduce the Pentagon (the building) from an overinflated five-sided building t
o a four-sided rhomboid, Hodgman suggests we raise revenue in an unconventional way. “If you really want to fill the nation’s coffers, you know what you have to do is—legalize it,” he says. (The audience, hearing the intimation of legalizing marijuana, laughs and applauds.) The rest of the conversation goes like this:
HODGMAN: You know what I’m talking about. Legalizing murder . . .
STEWART: You are talking about legalizing murder?
HODGMAN: Murder. All I am saying is, let’s put our free market Darwinian theories to the test. Let the weak perish and let the strong take their lives. So long as they can pay the bigamy tax.
STEWART: What about Social Security and Medicare?
HODGMAN: That’s half of our budget right there. And what? Dedicated to taking care of the oldies and sickies instead of the youngies and sexies like us? . . . The point is it’s not fair.
STEWART: You are saying get rid of the old and the infirm?
HODGMAN: No, no, don’t get rid of them. I’m saying let’s make Social Security fun. Make it a competition. Winner take all.
STEWART: You don’t mean . . .
HODGMAN: Yes, John. A tontine. A gentleman’s agreement in which the last living participant collects all of the Social Security money.
STEWART: But if murder is legal, then what it does is incentivize people to kill each other to win the pot! . . .20
The best model of such ridiculous arguments is Jonathan Swift’s “A Modest Proposal for Preventing the Poor People in Ireland from Being a Burden to Their Parents or Country, and for Making Them Beneficial to the Public,” in which the author argues that poor Irish parents should sell their children as food for rich gentlemen and ladies. But tontines are actually a time-honored way to make money, and they are more than a gentleman’s agreement.
