Behavioural economics is encouraging us to give more cash to charity
Behavioural economics is encouraging us to give more cash
Behavioural economists say little nudges can help steer people in the direction you want.
Photograph: Ken Bohn/AFP/Getty Images
Seven levitating Indian people currently occupy Oxfam UK's homepage. "Help Lift Lives for Good"
reads a caption. Click on it and you'll be taken to a webpage dominated by a smiling pupil at his
school desk. Cue another prompt in large font: "Will you lift a life today?"
Tempted? A "donate now" button looms large, suggesting a default option of ?4 per month. Next to it
a prominent pie chart assures you that 84% of your donation goes "directly" to the charity's poverty
reduction work. A sidebar tells you that Julian from Nottingham has signed the pledge, while Jay
from St Helens is donating a very generous ?25 per month.
All the while, Susanna from Liberia looks out from
a video clip in the centre of the page. Speaking
from her adobe hut, she describes how Oxfam has
helped her irrigate her land and increase her rice
harvest. "I'm nearly there," she says, referring to
the charity's promise to empower her. "Maybe next
month or this month ..."
It all sounds very cynical. It's not (well, not
excessively so). Oxfam, like many other charities, is
just getting cleverer at knowing what prompts us to act and are tailoring their messages
accordingly. Many such strategies can be traced back to the field of applied behavioural economics
and related concepts such as gaming and nudge theory.
"What behaviour economics does is give you an architecture and set of concepts for understanding
current behaviour," explains Crawford Hollingworth, founder of Behavioural Architects, a London-
based consultancy. "Once you've understood the blueprint of current behaviour, it's easier to nudge
and steer people in the direction you want."
One area where the private sector is proving deft at applying such
insights is employee giving. A company will challenge its employees
to raise, say, ?100,000. If successful, then the firm promises to give
an equal amount, thus doubling the total donation. "It creates a
motivator for people to hit that final number," says Klara Kozlov,
senior corporate adviser at the Charities Aid Foundation, which last
year partnered the Cabinet http://www.youtube.com/user Office in
a report about behavioural theory and personal giving.
Employers are also aware that people give more readily if they can visualise the impact of their gift.
A common factor when assessing charities for potential corporate partnerships is their ability to
communicate tangible outcomes to employees, says Kozlov. Likewise, firms are increasingly looking
to promote volunteering opportunities for employees. Seeing the charity's work "at the coalface", the
theory runs, engenders empathy http://tw.youtube.com/ and increases giving as a consequence.
Among the other corporate giving tactics that draw on behavioural insights are those that centre on
timing. It makes sense to request donations at bonus time or around Christmas (but avoid January).
A well-timed suggestion to increase your payroll giving contribution just as you receive a pay rise
can prove effective too. Both approaches play to what behavioural economists call "loss aversion".
Company philanthropy campaigns often tap into what the Cabinet Office report refers to as
"focusing on the social" too. Employees are more likely to respond to letter asking for a charitable
donation that comes with the chief executive's signature, for instance. Likewise, employees tend to
give if they see their peers receiving formal recognition or additional respect for doing so - a
phenomenon highlighted by US organisational psychologist Adam Grant.
Curiously, away from philanthropy, behavioural economics
appears to be making little headway in other ethics-related
areas of finance. That's partly a problem of mindsets. Finance
folk assume that we, like them, rely on rational logic when
deciding on money matters. Sadly, that's rarely true. The
deliberative side of our brain, what Hollingworth defines as
'systems 2' thinking, "tires very quickly".
Ethical finance providers would be better advised to "play
more to Systems 1", Hollingworth advises: ie to our more
emotional, more instinctive side. That means upping the levels
of "visual saliency" and "cognitive ease" with which they
communicate. Hollingworth points to the Co-operative Bank as
a rare illustrative example. Back in its heyday, the now beleaguered UK bank a series of emotionally
compelling adverts that won it praise - and new account holders.
One area where behavioural economics is proving popular in mainstream finance sector is in the
application of the so-called default option. Most of us are too lazy or too busy to switch from the
status quo, the idea assumes. That may work for workplace pensions, where employees now have to
opt out rather than opt in.
But setting an ethical default on investment products is likely to go down less well, suggests Craig
MacKenzie, head of sustainability at Scottish Widows Investment Partnership. Savers' ethical
preferences might not necessarily accord with those set by an investment manager; the manager
might turn out to be less than ethical in practice, or - and here's the clincher - the returns on
ethically screened funds might be lower.
"I'm not aware of any attempt to put nudge theory and behavioural economics to use for ethical
funds," Mackenzie concludes. Even so, given the flat-lining of the ethical investment market in the
UK over the last five years, a prompt towards change seems timely.
o This article was amended on 4 April 2014 to correct the spelling of Crawford Hollingworth's name.
Join the community of sustainability professionals and experts. Become a GSB member to get more
stories like this direct to your inbox