Now here’s a thing I don’t understand.

I’ve picked it from a very long list of things I don’t understand which includes; differential equations (obviously), how to get jam to set properly (recent problem), and why it is when people read the words “forgetful”, “bald”, “grey” and “wrinkle” it makes them walk more slowly.

The last of these is an example from the field of Behavioural Economics (BE), the subject of which I am currently preparing to speak on at IFC 2013.

Behavioural Economics is a dazzling treasure trove of new insights and a source of wonderful new innovations just waiting to be dug up and tested out on an unsuspecting (and I think often fairly bored / indifferent) set of potential donors.

We’re all used to those presentations which start by telling you how many bazillion Google entries a particular subject has aren’t we?

noordwijkerhout-300x199
The charming town of Noordwijkerhout, pop. 25,681

Never one to shun a cheap trick, I did it for “Charities and Behavioural Economics” and do you know how many Google results it returned? Have a guess. Well, it was a mere 260,000. By comparison I Googled ‘Noordwijkerhout’ – the small town in Holland where the IFC is held. It has a population of 25,681 people, but a staggering 5.1 million. Charming though the town is, I think charities and BE should garner a lot more interest.

So either the people of Noordwijkerhout know something we don’t know or our sector is missing a trick. I think it’s the latter.

What is Behavioural Economics?

The very premise of BE looks even at first glance like it should be immediately interesting to fundraisers. This after all is the study of how and why people behave in ways which are irrational. More specifically it’s about behaviours that are irrational as far as classical economics, with all of its fancy differential equations, is concerned.

What could be more irrational, from the point of view of classical economics, than giving away your hard-earned money? It becomes even more irrational if you give your money away to a complete stranger (or an animal), with no hope of ever seeing what your money gets spent on, let alone seeing what difference it makes, let alone having any hope of getting it back. Charitable giving must be one of the most irrational, obviously-not-to-do-with-differential-equations things that we could come across.

BE looks at the world differently. It says “Hey, classical economists, chill out with your maths and your invisible hands and your rational actors and whatnot”, “Let’s have a look at what the real world does and try and understand it”. And this is where things get interesting.

BE has all kinds of interesting ideas and observations in it, many of them being taken from the charity world already, precisely because the relevance is so great. Let’s take one example.

Case Study: Give More Tomorrow

A question: how likely are you to increase your monthly regular gift to a charity when you get an upgrade ask? Well, according to classical economics, you’re not at all likely as this achieves nothing whatsoever for your “utility” (sigh). However as good fundraisers we already know this is nonsense, and would probably reply that it depends on a variety of factors like the communications channel, the value of the donor, their giving history, the presence or absence of above-the-line communications, the quality of your fundraiser, getting the right emotion in the pitch and so on. All excellent points. However how many of us would think that it depended largely on WHEN then upgrade was due to start? Not me for one. But that’s what Swedish researcher Anna Breman, from the Stockholm School of Economics found when she carried out an experiment on just that.

I can’t put it any more plainly than Anna herself, here quoted in the abstract to her paper published in 2006:

51oxkwrcyyl
A seminal BE book

“The strategy, Give More Tomorrow, was implemented as a randomized field experiment in collaboration with a large charity. 1134 donors that make monthly contributions were randomly assigned to one of two treatment groups. In the first group, monthly donors were asked to increase their donations starting immediately. In the second group, monthly donors were asked to increase their donations starting two months later. Mean donations were 32 percent higher in the latter group, a highly significant difference. Donations conditional on giving were also signficantly higher in the latter group. The effect of the GMT strategy is economically large and highly profitable to the charity.” (The charity for those that are wondering is a Swedish development charity, called Diakonia.)

 

Anyway, it just so turns out that BE already has this covered. The idea that consumers have “wants” (e.g. ice cream) and “shoulds” (e.g. vegetables) and that “wants” do better when sold for immediate consumption (e.g. sweets on the supermarket checkout anyone) whereas “shoulds” sell better when purchased for future consumption has been shown by BE experiments in a number of different categories. So it turns out that by studying BE, you’d already be halfway to finding a new way of improving your upgrade programme by 32%. AND you don’t have to do any differential equations!

This is just one of the many ideas and examples that BE has up its sleeve. So I say, come on charity fundraisers, let’s immerse ourselves in the fascinating world of Behavioural Economics and do some great new work, starting at the IFC with its 5.1 million Google references Noordwijkerhout this October.

Footnote: At the time of writing, my jam still hadn’t properly set, and there’s nothing as far as I’m aware that even Behavioural Economics can do about it, so it does have its limitations.

This blog was originally written for 101fundraising.org in 2013. Since then, the number of Google hits on “Charities and Behavioural Economics” has risen almost three-fold to 611,000.

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