The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life (28 page)

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 to 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:

       
H
ODGMAN
: You know what I’m talking about. Legalizing murder . . .

       
S
TEWART
: You are talking about legalizing
murder
?

       
H
ODGMAN
: 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.

       
S
TEWART
: What about Social Security and Medicare?

       
H
ODGMAN
: 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.

       
S
TEWART
: You are saying get rid of the old and the infirm?

       
H
ODGMAN
: No, no, don’t get rid of them. I’m saying let’s make Social Security
fun
. Make it a competition. Winner take all.

       
S
TEWART
: You don’t mean . . .

       
H
ODGMAN
: Yes, John. A
tontine
. A gentleman’s agreement in which the last living participant collects all of the Social Security money.

       
S
TEWART
: 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.

Basically, a tontine is an interesting mixture of group annuity, group life insurance, and a lottery, and it isn’t just the stuff of mysteries or comedies. Tontines have a fascinating place in economic history, and they played a major role in raising public funds in Europe during the seventeenth and eighteenth centuries. Tontines get their name from one Lorenzo Tonti, a Neapolitan of little distinction until his sponsor, Cardinal Mazarin of France (who was responsible for the country’s financial health), supported his position in the court of the French king in the 1650s.

In this capacity, Tonti proposed a form of life-contingent annuity with survivorship benefits whereby subscribers, who were placed into different age classes, would make a one-time payment of 300 livres to the government. Each year, the government would make a payment to each group equaling 5 percent of the total capital contributed by that group. These payments would be distributed among the surviving group members based on each participant’s share of the total group contributions. The government’s debt obligation would cease with the death of the last member of the group.

Based on their success in France, tontines spread. Governments used them to finance wars and municipal projects, such as the oldest standing bridge in London (the Richmond Bridge). Built in 1777, the bridge garnered its funding from shares priced at a then–hefty
£100 each. Investors were promised an annual return based on the income from toll crossings. When one shareholder died, the surviving members received a share of the leftovers (which is why tontines seem custom made for murder mysteries and are banned in the United States).
²¹

Tontines have a fascinating place in fiction as well. Agatha Christie used them as the underpinning for several novel plots, including
Murder on the Orient Express
. More recently, in an episode of
The Simpsons
, Abe Simpson and Mister Burns discover they served together in World War II, and their squad came to possess priceless German paintings that would go to the last surviving member of the squad.
The Wrong Box
, a wonderful old film starring Peter Cook, Dudley Moore, Ralph Richardson, John Mills, and many other comics, is based on an old Robert Louis Stevenson story in which nephews of a tontine’s last surviving member fight over the fortune.

Because we knew, based on our earlier research, that lotteries help increase charitable donations, we wondered whether tontines might do the same thing. That is:
Rather than using tontines as a mechanism to finance government debt or provide a lifetime annuity for subscribers, could charitable organizations use them to elicit more donations? How would a tontine-like mechanism work in comparison to the other charitable ploys we’d examined?

First, think about our charitable lottery. For every dollar you give, you earn a raffle ticket; each raffle ticket represents a chance of winning the prize. So the more you give, the higher your odds of winning the prize. No matter how much money is raised, the prize doesn’t change; but, the chance of winning the raffle prize decreases as others give more, because the total number of raffle tickets increases.

If you think for a moment, however, it’s unclear why charities would focus on lotteries when reversing this structure might be
ideal. A charitable tontine would work by giving each donor a fixed probability of winning a prize, with the size of the prize proportional to the amount donated.

For example, let’s say you walk into your county fair and discover that people at a booth are raising money for the American Cancer Society with the help of a charitable tontine. The nice volunteer tells you that no matter how much you give, you’ll have a 25 percent chance of winning a prize, but the more you give, the better the prize. Then she shows you the various tiers of prizes for which you’ll be competing. If you give less than $20, you’ll be eligible for a few small trinkets, such as a bookmark and a water bottle. For between $20 and $50, you’re eligible to win a bottle of fancy wine. For $50, you might win a shopping spree; for $100, a weekend vacation at a resort; and for $200, you get a shot at a new Lexus. You begin to think of your donation as an investment opportunity.

To test whether tontines might work this way, we joined Andreas Lange and Michael Price to devise a laboratory game played by students of the University of Maryland. The game was contrived, but financially very real. The students’ decisions had actual financial stakes, perhaps made deliciously salient by the conversion of tokens to cash.

Here’s how the game went: each student was clustered with other students. At the start of each round, each of the students got 100 tokens. They could either give those tokens to the public good (a charity in this case) or keep them. If they kept them, they would get a few cents for every token they kept. If they donated them, one of two things happened. In one condition, each token donated to the public good grew in value. So if you donated five tokens, they would grow in public value to six tokens. (This arrangement roughly reflects what happens when you donate to a charity. For example, when you donate blood to the Red Cross, your own blood isn’t worth much to you, but it’s really valuable to someone else.
The increase in the value of each token in the public good was supposed to reflect this effect.)

In the other condition, everyone in a cluster benefitted from each donation. Even if you donated nothing to the public good, you could still enjoy the fruits of others’ donations. (Similarly, when Bill Gates gives billions of dollars to charities, he makes the world better off, but we don’t have to pay anything to enjoy the fruits of his generosity.) After being assigned to a cluster, the students had a simple decision to make: how much should they keep and how much should they give to the public good? But then we added an extra wrinkle: we entered them into either a lottery or a tontine.

We found that tontines outperformed lotteries in two very important instances. First, in cases where people have very different tastes, tontines raise much more money than lotteries. When people really diverge in their preferences for what is being offered, tontines can be a very good tool to get the people who like it to give more. Second, when people are really risk averse—say, they don’t like to gamble or place much of their money at risk—the tontine is a good tool to raise money. Since both of these features—people are different and people are risk averse—represent the world today, the tontine is a viable tool for fundraisers.

The results of our experiments also suggested people are much more likely to donate when they’re invested in the game. This finding makes sense—after all, if you feel the charity is trustworthy (remember the follow-the-leader effect?), and if you stand a chance of “winning” with it now or in the future, you are more likely to respond to its appeals.