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Thanks for Giving

When the prospect of receiving undermines giving.

There's nothing like research that produces counterintuitive results. A good example is provided by George Newman and Jeremy Shen’s work on the psychology of charitable giving, which is just about to be published in the Journal of Economic Psychology.

A couple of past studies on charitable giving have shown that people are more likely to donate (and give greater amounts of money on average) for a good cause if they receive a small unconditional gift when the donation is being solicited (Falk, 2007; Alpizar et al., 2008). Falk (2007), for example, collaborated with a charitable organization and sent thousands of solicitation letters to potential donors. One-third of the letters contained no gift, while the remaining letters contained a small gift (one postcard plus envelope) or larger gift (four postcards with four envelopes). The relative frequency of donations was 17 percent higher when a small gift was included and 75 percent higher when people received a large gift.

The core explanation for this finding is simple: receiving a gift creates feelings of reciprocity. What goes around comes around. I’ll scratch your back if you scratch mine. It’s human nature.

Newman and Shen’s brand new research shows evidence to the contrary when small gifts are conditional. They first asked research participants who they thought would donate more money to public broadcasting, a group who is offered a commemorative pen in return for a donation or a group who is not offered a gift. 68% thought it would be the group offered the conditional gift. The predicted average amount was $30.89 for people receiving a gift (the estimated worth of the pen was $2.79) and $22.26 for those not receiving a gift.

When two separate groups of people were asked how much they would actually be willing to give under either conditional gift or no gift circumstances, however, results ran counter to lay beliefs and the pattern was reversed (with gift: mean=$19.18; no gift: mean=$28.60). The same was true in a non-hypothetical experiment where participants were entered into a lottery for a $95 gift certificate and asked how much of their winnings they would donate to Save the Children. Those offered a tote bag as an incentive donated only $18.25 on average, compared to an average of $23.81 among those who weren’t offered anything in return.

Newman and Shen tested a number of alternative explanations for this seemingly counterintuitive finding, including whether the thank-you gift may have changed participants‘ view of the non-profit organization, possible effects due to levels of a gift’s desirability, as well as whether a gift’s estimated worth may serve as a low-value “anchor” that influences donation amounts. In the end, their experiments pointed to a “crowding out effect” as the most plausible explanation.

In psychology, crowding out refers to a shift in motivation when incentives change. More particularly, extrinsic motivators like material rewards can undermine intrinsically motivated behavior, such as charitable giving or other forms of altruism. According to the authors of this research “a thank-you gift creates ambiguity about whether one is donating to support the charity, or instead to receive the item”.

Taken together, then, research on the effect of small gifts on charitable giving suggests that receiving the gift unconditionally (e.g. with a solicitation letter) can have a positive effect, whereas conditional gifts (the offer of receiving a gift later, in return for a donation) may have a negative effect on donations. This has clear implications for the solicitation practices of charitable organizations: In order to increase donations, organizations may be better off “giving for thanks” than “thanking for giving”. Unfortunately, the first option is much more expensive and the extra cost of gifts may end up being higher than the potential gain in donations.

Available from July 2014: The Behavioral Economics Guide 2014 on (free download)

References and Further Reading

Alpizar, F., Carlsson, F., & Johansson-Stenman, O. (2008). Anonymity, reciprocity, and conformity: Evidence from voluntary contributions to a national park in Costa Rica. Journal of Public Economics, 92, 1047-1060.

Falk, A. (2007). Gift exchange in the field. Econometrica, 75, 1501-1511.

Frey, B. S., & Jegen, R. (2001). Motivation crowding theory. Journal of Economic Surveys, 15, 589-611.

Newman, G.E., & Shen, Y. J. (In press). The counterintuitive effects of thank-you gifts on charitable giving. Journal of Economic Psychology.

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