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October 13, 2006

When Giving is Cheap

A game reveals what lies beneath our most charitable impulse.


When a philanthropist pledges to match any funds raised by a favorite charity, some donors give more money. Their altruism is motivated in part by a sense of economic efficiency: it would be a shame to let those matching funds go to waste. In a matching-fund scenario, donating money is “cheap” — an individual’s $50 donation means the charity gets $100. But how do people respond when giving is expensive? And what does their behavior suggest about their preferences for efficiency and equity?

Professor Ray Fisman studied individuals’ giving preferences with Shachar Kariv of UC Berkeley and Daniel Markovits of Yale. In experiments using a computer game, the researchers presented students with 50 charts depicting donation budgets, with different scenarios for how the funds would be distributed. For each budget, students had to allocate the funds between themselves and another student. In some rounds, the receiver would receive more than $1 for each dollar donated, so the giver could maximize the size of the pie by being generous. In other rounds, giving is expensive, so keeping more money for oneself maximizes the total sum.

After 50 rounds of this game, one round is picked at random to be the one that counts: the students receive a cash payout according to the allocations made in that round. Each student is both a giver and a receiver. “At the end of the experiment, a student, on average, walks out with $25,” says Fisman. “The difference between being selfish and altruistic can easily mean a difference of about $25. So a student who has been very selfish and has been the beneficiary of a generous partner could wind up with $50. And someone who’s been magnanimous and got paired with a selfish partner might not get enough to buy a cappuccino at Starbucks.”

Based on an individual’s choices over the 50 rounds of the game, the researchers can devise a mathematical function that describes that person’s giving behavior. “We’re interested in finding out how much people care about equity versus efficiency,” says Fisman. “We find that people have widely varying preferences, but they lean toward efficiency — that is, when it is cheap to give, they give more.”

But some subjects — including Fisman’s father, who played the game during its testing phase — had a strong preference for equitable distribution, rather than maximum efficiency. “Every time it was cheap to donate money, my father would keep most of his budget,” an effort to prevent the receiver from winding up with a greater share of the pie, Fisman says. “And every time it was expensive to give, he would give most of it away. I wanted to make sure he understood the game, so I asked him why he was making these ‘inefficient’ allocations. He replied, ‘But I just want to make sure we’re both equally well-off in the end.’ This fits perfectly with how I see my father behaving in the world outside the lab: he values equality, almost to a fault.”

The experiment adds to the growing body of research on why individuals sometimes abandon their own self-interest when making economic choices — that is, the economics of altruism.

“I really do think that people are projecting their identities onto this game,” Fisman says. “I think it’s instructive that when you have this sort of tradeoff spelled out very explicitly, people do show significant concern for others.”

Raymond Fisman is associate professor of finance and economics and research director of the Social Enterprise Program at Columbia Business School.

Read the Research

Raymond Fisman, Shachar Kariv, Daniel Markovits

"Individual Preferences for Giving"

View abstract/citation  Download PDF  


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