Wednesday, May 6, 2009

Economist's Notebook: The Economics of Charitable Giving

My drive to Corvallis has suddenly gotten much longer - it is pledge drive time at OPB. This, however, does get an economist thinking - why do people give charitably?

We generally assume people are altruistic - they like to see the poor being helped, for example - but the first best is always for the poor to be helped, but for me to keep my money. In general for public goods we call this the free-rider problem, since I can get just as much OPB whether I contribute or not there is no reason for me to contribute. Yet I, and many others, do. Well, perhaps it is because we actually get satisfaction from the act itself - economists call this the 'warm-glow' motive - in which case we are actually making ourselves happier by contributing.

But is it all true this way that economists think about these decisions? Well, the emerging field of 'neuro-economics' hopes to better understand such things by watching brain function of people in the process of making such decision through the use of functional MRI. One such person working in this field is Bill Harbaugh of the U of Oregon, who has looked at charitable giving and has found:

Consistent with pure altruism, we find that even mandatory, tax-like transfers to a charity elicit neural activity in areas linked to reward processing. Moreover, neural responses to the charity's financial gains predict voluntary giving. However, consistent with warm glow, neural activity further increases when people make transfers voluntarily. Both pure altruism and warm-glow motives appear to determine the hedonic consequences of financial transfers to the public good.

So, it appears that it is a general part of our preferences: we may be hard wired to get pleasure from charitable acts.

Now there are a few caveats: functional MRI is looking only at one type of brain function and is pretty crude relative to the sophistication of the brain. So, just because we see stimulus in certain areas of the brain it is not yet clear that we can generalize this into preferences the way that economists think of them. However, that said, the results suggest that you are happier if you give.

Given this result we might want to ask: what is altruism? Or, it is really altruism if we get pure pleasure from it?

Either way, OPB is waiting for your call...


MPPBrian said...

I think that peer pressure is important as well, particularly for organizations like OPB. The pledge breaks are a sales job, and there are often tangible rewards for joining in addition to the good feeling. But I've been reading Jonah Leherer's "How We Decide" book, and one of the points he makes is that people are very concerned about what everyone else is doing. One of the things about the pledge breaks, with the phones ringing and the hosts talking about how they've raised X thousand dollars so far just during this hour is that it makes it seem like everyone else is giving and that you should too.

Patrick Emerson said...

Yes, there are lots of things that go into it but we are often very influenced by actions of those around us, for good or ill.

jessibeaucoup said...

Oh how I hate the pledge drive!! But, I did get online and give on Monday so I could listen without guilt... I hate peer pressure too!