The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life (27 page)

As the responses trickled in, we discovered that the received wisdom in the industry was correct, but only partially. Seed money does work to attract other donors. But the 33 percent number some of the experts had given us was completely wrong. As it turned out, giving increased when we told people we had 33 percent of the funds already raised, but it increased even more if we told them we had already raised 67 percent of the goal. At lower seed levels (say, 10 percent), the contributions dropped off.

It looked like the good people in the charity industry had been leaving free money on the table by focusing so intently on the 33 percent seed-money figure. Still, their combined intuition may not have been completely wrong. You see, seed-money levels convey competing pieces of information to prospective donors. On the one hand, you would think that the closer a charity comes to achieving
a fundraising goal, the less a donor would feel she has to give to help reach the goal—she can “free ride” on the donations of others.

But on the other hand, donors are busy people. They don’t have time to investigate every detail of every charity, so they may look for signals from other donors. Saying you have raised a lot of seed money from an anonymous donor conveys that an “insider” has done her homework and has given a large gift.

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.
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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.
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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.”
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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.
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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!
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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.
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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.
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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.’”
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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.
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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.