The economics of altruism

I like trying to understand what it is that motivates people to give.  On a personal level, I find it deeply satisfying to hear stories from philanthropists like David Hardie, who shared his journey to becoming a philanthropist on this blog over last two weeks. With so much pessimism about, stories like David’s provide a little dose of inspiration. But can we ever truly understand what it is that motivates some to give and others to accumulate wealth?  Is it as simple as some people having an altruistic spirit and others being, well… greedy? We could look to philosophy, psychology (as Claire Rimmer did in her blog last week),  sociology even anthropology for the answers, but it’s actually economists who appear to have done the most work in this space.

Economists believe humans act rationally with our actions influenced by incentives. This point is important and at a surface level feeds the assumption that most people are, at their core, simply out for themselves. But what a crappy thought!  After reading David Hardie’s blogs I find this really hard to believe.

Economists have developed a series of ‘games’ to experiment with what exactly drives a person to act altruistically.  Using the Dictator Game initially, economists found results that seemed to indicate that people were hardwired for altruistic behaviour. If you’re not familiar with the Dictator Game, here’s the breakdown of the experiment to assess people’s altruistic behaviours:

  • volunteer 1, let’s call her Jane, is given $10 and is told that she can divide the money with volunteer number 2, let’s call her Barb, in any way she likes.
  • Jane is also told that Barb has no idea that she has been given the money or the option of dividing it. The anonymity bit is important because it means that Jane is neither rewarded or punished for her actions (it also means that the ’emotional’ pulls, evident when we give money to disaster relief or charities we are connected with, are removed)

Regardless of where the experiment was conducted, in the USA or Mongolia, the ‘dictator’ Jane tended to hand over about 20% of her money to the unknowing Barb. Wow! Giving away 20% of your money without any potential of reward seems to indicate that people act without any consideration of personal incentives. But, of course, the optimism around this amazing altruistic spirit didn’t last long. Enter John List.

John List, a Professor of Economics at the University of Chicago, is the person who really stepped up altruism experimentation. List devised a form of the Dictator Game that once again provided Jane with some cash, this time $20, and gave her three options whereby she could either:

  • keep all of the $20
  • give away any percentage to Barb or
  • take $1 from money that had been provided to Barb.

If you have 10 mins to spare it’s definitely worth checking out this RSA animation based on the List experiment by ‘Freakonomics’ and ‘Superfreakonomics’ co-authors, Economist Steven Livett and the Wall Street Journal’s Stephen Dubner. Alterntively, if you’d like to read the excerpt of the chapter from Superfreakonomics on which it is based you can check it out via The New York Times.

What List found was that in his version of the game only 35% of the people in the Jane role gave any money to Barb, 45% didn’t share at all and remaining 20% took the $1! As List played with the experiment and increased the amount Jane could take from Barb he saw a drop in the number of people who gave any money at all.  In fact when given the option of taking all of Barb’s $20, 60% of Janes took every cent.

List did run another important experiment whereby volunteer Janes and Barbs needed to earn their cash, usually through filling out a long survey.  Once again Jane was given the option of taking Barb’s hard earned cash but this time only 28% (a big drop from 60% in the original experiment) took the money and ran. Apparently it does matter how the person came into having the money (windfall v earned altruism experiments are fascinating and for another blog).

These experiments have since taken on a life of their own.  The percentage of money Jane gives to Barb changes drastically if Jane is told that Barb is aware of the choice she has.  Equally and definitely the topic for another blog, is that if Jane is actually a John the giving percentages change again (gender is a factor in how and why we give).

There are so many external factors in how we give and the amount we give that List and other economists came to a bit of startling conclusion.  We are not hardwired for altruism.  In fact, many economists concluded that when we give we are simply responding to incentives.  Perhaps its to feel good, or less bad.  Perhaps it’s because of social expectation (which might explain the recent media around high net worth individuals not giving enough), even to fit in or gain access to a social group (The Giving Pledge perhaps…) or in some instances to impress someone. For many, it’s simply the tax breaks they get.

Now the idea that you give because you get something out of it might not appeal to most.  But think about it carefully, list the reasons in your own mind as to why you give, if you give at all. Ultimately, incentives might form a reason as to why or whether we give at all, and frankly, that’s fine with me. Whether it’s for the tax breaks or that warm fuzzy feeling you get in your stomach, I just want to see more people give.