Giving Tuesday: No One Wants to Fund Overhead Expenses

Few people enjoy donating to charities which have a high administrative expense ratio.  We prefer that our money goes directly to people in need, rather than to fund overhead expenditures.  Uri Gneezy, Elizabeth A. Keenan, Ayelet Gneezy have written a paper on the subject.  Their paper, "Avoiding Overhead Aversion in Charity" was published in Science last fall.  

They conducted an interesting field experiment to examine how people would behave with respect to donations to a large education foundation's new initiative.   Approximately 40,000 people received requests to donate to this foundation.  They split the population into four groups, with each receiving a different letter.  One group received a letter indicating that one donor had already made a $10,000 contribution to the foundation to launch this campaign.  A second group received a letter indicating that someone had offered to match donations up to a total of $20,000.  A third group received a letter indicating that someone had contributed money to cover all overhead expenses for this new initiative.  Finally, the fourth group represented the control for the study.  They simply received a generic letter with information about the foundation's request for funds.  

What did the scholars find in this field experiment?  A significantly higher percentage of people in the "overhead-free" group donated to this cause.  Moreover, they donated three times as much as the people in the control condition, and nearly twice as much as the next highest group.   The findings are quite interesting.  Certainly, nonprofits can try to keep overhead expenses low.  However, some administrative expenditures are necessary.   Having a donor who is willing to fund those costs can make it much easier to raise money from every other potential donor. 

Do Good, Be Happy... with a Caveat

In this article, Stanford University reports on a stream of scholarly work that shows how acts of kindness toward others enhances personal happiness.  Stanford Professor Jennifer Aaker calls it the "helper's high."  Her recent research, with Melanie Rudd and Michael Norton, examines how to optimize that "helper's high."  Their work shows that setting concrete philanthropic goals works much more effectively than establishing abstract objectives. Aaker explains, "This insight is important because nearly all of us are trying to make other people in our lives happy. Parents often say they just want their kids to be happy. Equally common is a desire to make our partners, family members, and friends happy, but few of us know exactly how to bring happiness to the people in our lives. Our new research sheds light on what we can do.”

The researchers examined this issue of concrete vs. abstract goals with a simple experiment.  They gave experimental subjects $5 Amazon gift cards in exchange for the performance of an act of kindness.  One-half of the subjects were asked to make someone else happy; the others were asked to try to make someone smile.  The former represents an abstract goal; the latter serves as a more concrete objective.  Those asked to make someone else smile indicated they experienced more personal happiness than those instructed to make someone happy. It did not matter what method any of the subjects used to try to make others happy or to make others smile. 

Speaking of how performing acts of kindness can make you happier, check out this story about "paying it forward" at Starbucks: