The Mistakes We Make When Giving to Charity

Our minds play tricks on us, limiting the effectiveness of our efforts. But we can learn to do better.
Shlomo Benartzi and Christopher Olivola

All of us think about giving during the holiday season. But it’s possible that we’re thinking about it wrong.

That’s the conclusion of recent research, which suggests that our generosity and good intentions are hamstrung by tricks our minds play on us. Most people by their nature are very generous, but they don’t think clearly about the choices they make when they donate to charity.

For example, they may donate less than they otherwise would, because they assume that giving will make them less happy than receiving. The fact is that studies show the opposite: When we’re generous and spend on others, we feel happier and more fulfilled.

In addition, many people assume that donating time to a good cause is much more valuable than just giving money, because writing a check seems too easy to be really meaningful. In fact, though, gifts of money often do more good than a single volunteer’s efforts could.

To demonstrate the power of these mistakes, we surveyed a sample of The Wall Street Journal’s followers on social media. Our survey was modeled after scientific studies conducted on thousands of subjects. While we found that these respondents were quite generous overall—over 96% said they had given to a charity within the past year—we also identified many of these same errors involving the consideration of pro-social trade-offs.

Here’s a closer look at three of the main errors that limit the scope and effectiveness of our generosity.

Mistake 1: The martyrdom effect

One of the biggest errors people make involves a phenomenon that one of us, Dr. Olivola, calls the “martyrdom effect”—the tendency to prefer forms of giving that involve significant sacrifice and effort, such as running marathons or taking the ice-bucket challenge.

This means that when we assess the trade-offs of various forms of giving, we are biased to admire the more-challenging ways of helping (e.g., volunteering in a poor country), even when easier means (e.g., donating money) are far more effective. Instead of donating money to a medical institute, we decide it’s better to participate in an endurance-cycling fundraiser.

Consider a hypothetical scenario involving two physicians, William and Theodore. After completing his residency, William opened up a private practice in Los Angeles and earns an annual salary of $700,000. He lives a very comfortable life. Every year he donates $50,000 to Doctors Without Borders, which helps treat people in poor countries. His donations save 500 lives a year and help treat hundreds more.

After completing his residency, Theodore joined Doctors Without Borders and earns an annual salary of $23,000. He moves regularly, living in the rural villages of various Third World countries. He works directly with sick and injured people in these poor countries, providing them with medical treatment and advice. Through his work, he saves 200 lives every year and treats hundreds more.

Which of these physicians is leading a more admirable life? And who is doing more to improve the welfare of other human beings?

From a utilitarian perspective, it’s clear that William is doing far more to improve the welfare of others, as his monetary donations save more than twice as many lives. However, several studies have found that most people take a different view. For example, 92% of The Wall Street Journal social-media followers we surveyed indicated that Theodore, the doctor at Doctors Without Borders, was leading a more-admirable life. And 60% said that he was doing more to improve the welfare of others, even though he saved fewer lives than William.

To better understand this apparent contradiction, we asked these respondents if they believed that people should use their skills “primarily to help others in need” or “primarily to pursue their own personal goals.” Those with a more selfless approach to life were much more likely to believe that Theodore was a model of generosity. Having a more selfish orientation led people to prefer the approach that ended up saving more lives.

Respondents who read other vignettes voiced similar opinions. For example, 81% thought that an investment banker who helps feed 100 people a week by volunteering at a soup kitchen leads a more-admirable life than one who helps feed twice as many by donating money to the soup kitchen. Dr. Olivola and his colleagues—Bennett Foddy at New York University and Ashley Whillans at the University of British Columbia—found the same patterns of responses when they surveyed medical professionals and high-net-worth individuals.

This is not to diminish the value of volunteering. In some cases, the best way to give is to sacrifice blood, sweat and tears for a good cause. And some people lack the means to donate money, so it’s better for them to give time and effort. But it’s important to analyze our options to see which choice helps the most people, and make sure that we aren’t being misled by the martyrdom effect. Sometimes, the most-effective way to give is also the easiest.

Mistake 2: The Other-Nothing Neglect

In another research project, Dr. Olivola asks people to consider trade-offs between selfish and generous outcomes. A typical choice: They can choose to receive $15 for themselves or to have Unicef receive $35.

Although it may seem like a simple trade-off, people tend not to think through such choices carefully. We are cognitively lazy creatures, with limited mental bandwidth, which means that we can’t contemplate the opportunity cost of every alternative. In fact, Dr. Olivola has found that our attention to these opportunity costs is asymmetric: We are quick to consider what we stand to lose by being generous but slow to consider what others stand to lose if we choose to be selfish. In the above example, we recognize and weigh the consequences of giving up $15 (the cost of a very nice sandwich) but fail to fully contemplate the implications of Unicef not receiving $35 (the cost of vaccinating several children).

Fortunately, Dr. Olivola’s experiments have shown that people can be nudged to think through these kinds of choices in a more-balanced way, by subtly amending the description. Instead of telling people that they would get $15, he now also reminds them that if they choose that option, “Unicef gets nothing.”

On the face of it, this reminder seems to be unnecessary—clearly, if I choose to keep the $15, then it means that Unicef will not receive the $35. Yet these three extra words make a big difference. In our online survey, adding the reminder that Unicef would get nothing if they chose to receive $15 reduced the percentage of people who selected this selfish option by more than a third. By contrast, reminding them that if they give to Unicef then they get nothing did not impact their choices. Dr. Olivola and his graduate student, John Han, have also found this pattern with much larger samples of respondents—a phenomenon Dr. Olivola calls the “other-nothing effect.”

The robustness of the other-nothing effect suggests that it can be used to boost our generosity. For example, instead of asking potential donors whether or not they would be willing to donate a particular suggested amount, charities could frame the question as a choice between donating that amount versus “choosing” to have the charity receive nothing (or $0). By helping us see around a blind spot, making us more aware of what happens to others when we keep everything for ourselves, we can think more effectively about these trade-offs.

Mistake 3: The unexpected joy of giving

Most people assume that generosity involves sacrifice: We are giving something up so someone else can have more. Charity might get us to heaven, but it probably won’t make us happy, at least here on earth. But this assumption turns out to be largely incorrect. In fact, many people experience a bigger boost in happiness when they spend money on other people. In these cases, giving is literally better than getting.

Consider research from Elizabeth Dunn of the University of British Columbia, Lara Aknin at Simon Fraser University and Michael Norton at Harvard Business School. They handed out envelopes containing $5 or $20 to people on the street. For some, the cash came with a note asking them to spend the money on themselves. Among other things, these people bought jewelry, drinks at Starbucks and sushi. The other half of the subjects got a note asking them to spend the money on someone else or donate it to charity. They reported giving money to the needy and buying gifts for others. Instead of getting coffee for themselves, they treated a friend to a cup.

At the end of the day, the researchers called everyone up and asked them how the unexpected windfall had impacted their happiness that day. The first surprising finding was that the amount of money ($5 or $20) didn’t matter much. What was even more surprising was that those who had been assigned to spend that money on others reported higher levels of happiness.

We found a similar effect in our own survey. When we asked our online respondents to imagine how happy they would be if they spent a $100 windfall on themselves, their average response on a five-point scale (with 5 being “very happy”) was 3.89. However, when we asked a second group how happy they would be if they spent that $100 on someone else, they reported an average happiness level of 4.32.

We often assume giving money away is a choice between our happiness and the happiness of others. But this research is a reminder that generosity is much better than that: We are built so that giving also feels good. When we donate to a cause we believe in, everybody wins.

Taken together, these three mental mistakes suggest that many people probably aren’t being generous enough with their money. This is true for both selfless and selfish reasons: We should donate more to our favorite charities if we want to improve the world, but also if we want to improve our own mood.

The Wall Street Journal