To Give or Not to Give – Theory of Altruism

Many of the modern economic theories are predicated on the assumption that people are self-interested, i.e. they only take courses of action that elicit pecuniary benefit. Accordingly, one would expect individuals to behave so as to maximise their benefits. Yet, there is a strong body of research evidence indicating that people are strongly motivated by other regarding preferences in their decisions, such as fairness and inequality. Think about the illustrated economic game:

A certain amount of money , say $20, are given to Person A. Person A (giver) can then share any amount at his/her discretion with person B (recipient), who has to accept the given amount. If you were in the place of Person A, would you share your money and, if so, how much?

The assumptions of conventional economics predict the answer to be zero, i.e. the giver keeps $20 for himself/herself. However, in reality, 64% of the participants, on average, shared one-fifth of their endowment. Remarkably, some participants gave away their entire amount. These results highlight that human behaviour is not solely dictated by monetary considerations.

Explaining the Phenomenon: Other-Regarding Preferences

The founding father of economics, Adam Smith, has long formulated the following idea – one who seeks happiness for oneself will not find it; one who helps others will. Individuals gain internal reward in the forms of pleasure, happiness and moral satisfaction from the act of giving, even in cases, in which monetary costs are incurred. In the given example, many people have chosen to give, since the perceived internal reward from giving surpassed the monetary amount given.

Evolutionary biology takes a different standpoint to explain the phenomenon of people’s willingness to give others when they are not obliged to do so. Through the process of natural selection, it may be that evolution favoured people who were co-operative and equitable in exchanges, as the fitness of the group, not the individual, was the essential requirement of survival in nomadic communities. Hence, there is a hard-wired tendency to co-operate, disguised as sharing in the economic game.

Incentivizing Giving: Implications for Non-Profit Organizations

As illustrated in the flow-chart below, in order to arrive to the decision to donate: ( 1 ) people need to recognize the need; ( 2 ) consider the possible impacts of the donation; and ( 3 ) act, if internal reward from giving surpasses monetary costs. Following this model, charity organizations can increase the amount of donations received through addressing the three broad stages of the decision-making process.

The first stage in this process is the recognition stage, in which attention and focus on those in need are imperative for eliciting empathy in potential donators. Hence, organizations need to continuously communicate the need for donation to the public. However, whereas many organizations are successful in the public outreach, only few are successful in increasing the effectiveness of the second stage in our model – consideration stage. Many make the mistake of providing holistic information about the impact of donations, e.g. total number of impoverished students helped. This results in individuals thinking that their donation would not have a substantial impact and perceiving it as a drop in the bucket. It has been consistently shown that willingness to donate is highest, when donations are made to a single person; it is often referred to as singularity effect. Christopher Hsee has found a creative solution to increase group donations by leveraging the singularity effect. A simple, yet powerful, trick consisted of requiring donors to specify how much one would want to give to a single person in need and then asking how many people he/she would like to help. This has significantly increased the size of donations.

Regarding the action stage, it is the step that non-profit organizations should consider with due attention. The fundamental importance of this stage stems from the availability of feedback – as a result of the donation itself – that could be fed back to the donor. In particular, this means providing concrete details about the usage and impact of the donated funds, which proved to substantially increase the tendency of people to donate again. In doing so, a virtuous circle can be established, in which the recognition of the need is re-communicated, and impact considerations are elucidated – simply by increasing the awareness about particular details of the donation outcome.

Altruism highlights that human beings are not purely self-interested, solely focusing on maximizing monetary gains. Instead, we are co-operative, helpful, and prosocial beings, from which we derive intrinsic reward through helping others. However, it is a different question whether true altruism exists, i.e. doing good without expecting anything in return (even in the form of intrinsic reward). The argument of whether pure altruism really exists will be addressed through a philosophical view in our upcoming blog.