Behavioural economics meets charitable donation

Incentives

As a company, the Giving Group (who run Justgiving in the UK and Firstgiving in the US) has a particular set of incentives. Because we take a transaction fee from peoples donations to charity, it’s in our interests to try and increase the amount donated to charity. This is a good thing for charity because by increasing our profits by a modest £50,000 per year means that we have to generate an extra £1,000,000 per year in charitable donations.

You might ask why charities don’t do this themselves and save some money. The answer to that is in the economy of scale. By building a donation service that thousands of charities can use, we can charge a tiny fraction of the price that charities would have to pay to build one themselves. If we make £10k worth of improvements to the service used by our 3000+ charities we’ve effectively saved them a collective £30m. The trick is this; if charities build their own system, the cost of that is hidden from the donor. You don’t know how much of your donation goes on the salaries of employees or service providers.

The incentive structure and the economy of scale add up to explain why Justgiving has irreversibly changed the way people raise money for charity online.

Behavioural Economics

The study of these incentives is called Economics. It may sound dull but it’s actually the study of human nature and how it’s revealed through commerce. There’s a growing weight of argument behind the field of Behavioural Economics, a field that specialises in studying how our emotions and biases effect our commercial transactions.

Behavioural Economics is particularly relevant to the Giving Group because it’s one way to measure the motivations of people who donate through our services. In other words, it could indicate what proportion of our users are sponsoring their friends because they feel obliged, what proportion are showing off in front of work colleagues, donors’ emotional response to different charities, and much more besides.

Research

There is already research underway into why people give to charity. You can read about some of it at the New York Times. I think we’re in a good place to contribute because the Giving Group has a significant amount of data about peoples donation habits. I think that (without ever intruding on people’s privacy) we should be able to discover what motivates donors who use our system.

An example of this is the new phenomenon of donor fatigue (as discussed in the Independent and the Telegraph). The short version is that people who are repeatedly asked for sponsorship are likely to donate less or not at all. By investigating both the effect, and the currency value, of individuals being repeatedly asked to sponsor friends, we can both assess the scale of the problem, predict future trends, and measure the results of changes we might make to counter any problem.

This research is currently underway, watch this space for interesting developments.

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