Freakonomics Radio - 141. How to Raise Money Without Killing a Kitten

Episode Date: October 10, 2013

The science of what works -- and doesn't work -- in fund-raising

Steve Levitt is my Freakonomics friend and co-author. He teaches at the University of Chicago. Hey, so Levitt, we're going to do something today that we've never done before on this program, which is BEG. We've been putting out this podcast for, I think, almost four years, all free. And now we're going to ask people for some support. What do you think of that idea? Is that nuts? Good luck.

It's hard to give things away for free and then ask for money later. So, Levitt, you've worked with some nonprofits trying to raise money. What's considered a good response rate? Let's say I send out a thousand mailers trying to raise money to help poor children around the world. What's a good response rate? So if you're sending those out cold to people who've never given you money before, I think something like 1%, 10 out of 1,000, would be a really good number. But our audience is a little bit different, right?

Anybody who's listening to this is not a cold call. So if we were to ask people to send money to make Freakonomics Radio and keep it free, what kind of response rate do you think we'd get here? You know, what's hard here is that the mechanism for getting people to send is more difficult. I would say once a day someone comes up to me and says, hey, I love the Freakonomics podcast. I listen to it while I jog or while I work out in the gym. I think if you could actually get someone in mid-jog or on the bike at the gym to be able to press a button and send money directly to us, I think you'd actually do okay. The chance that someone's going to get done with their run, go back and take a shower, and then log onto a computer and give you money,

I think that's really close to zero. So you think we'll raise close to zero dollars? I do, actually. Yeah. All right. So can I just tell you, listener, not Steve Levitt, this is a fantastic opportunity to prove a relatively smart person totally wrong. Prove me wrong. I love to be proved wrong. From WNYC, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dupner. How many different people and institutions come at you in one way or another with their hands out asking for a donation? They might be raising money to fight pediatric cancer, to protect a forest, maybe to get some maverick politician elected or even to make a podcast. Now, why do so many people come at us with their hands out?

Because it works. Americans are an extraordinarily charitable people. When you look at the data, what we find is that all the way back to 1971, people are giving about 2 to 2.5% of their wallets. So what I mean by that is about 2.2% of personal income is given to charitable causes. So when you look at the data, you have this feeling that, wow, Americans tend to give a ton of money. And when you look from 1971 to 2011, our giving rates have gone up by about 12-fold. That's John List. He, like Steve Levitt, is an economist at the University of Chicago. He's done a lot of research and a lot of experiments on fundraising.

He's tried to figure out empirically what really works. Now, fundraising is one of those things like education or dating, where there's a massive amount of conventional wisdom, a lot of habits and tradition, but not much science. What you have is a lack of strong statistical support that backs up exactly what those people are doing. So you say, well, why in the world do they do it? They do it because that's what their boss told them to do. And in effect, they do it so then if things go wrong, they won't get in trouble. John List is trying to change that kind of conventional defensive thinking. He and another economist, Uri Ghanizi, have just published a book called The Y-Axis.

That's Y as in W-H-Y, as in why do people do the things they do, like giving away money? What could possibly make us give away more than 2% of everything we earn? So when you think about why all of this money is given, the economist in me naturally says, well, what are the incentives for why people might give? And I think the traditional feeling is that people tend to give because of altruism. People just want to help another person who is not as well off as they are. I have a feeling you're going to tell us that not as much of a

driver as people would like to think. You know, as the data would suggest, now we've done these experiments all the way back to 1998, and we're still very actively doing experiments with several charities now, what you tend to find is that people are more driven out of purely self-interest. And what I mean by that is that people give because it gives them a warm feeling. As economists say, or as Jim Andreoni would say, people derive a warm glow from giving. So now what you have is this idea that if you want to expand your donor base, or if you want to induce people to give more money, you should really now be appealing to, hey, here's what this can do for you. Or if you don't give today, this will actually be taken away and you will no longer be able to

use it. Rather than appeal to say, you know what, you can help this poor person over there. I think fundraisers for years have gotten it wrong that they need to appeal more to the actual donor rather than the recipient of those dollars. So first of all, the first two incentives you've named, one would be, we'll call it pure altruism, and number two would be impure, we'll call it warm glow altruism. I know that's what you economists often call it. And you're saying that while people think that pure altruism is the primary driver, that warm glow altruism is a much stronger driver. Let me just ask you this, there's nothing wrong with that, is there? No, absolutely not. As an economist, I really don't care why people give.

Yeah, you care that you know the real reason so that you can appeal to that, right? Absolutely. What I care about is people giving because it's very important to have private organizations provide the great public goods that we have all over the world. So it's important to know exactly what drives a donor to give and what keeps that donor committed to the cause. Once we know that, we can be more successful in our fundraising drives and then we can provide more public goods or more of these goods that the government or private markets fail to provide. What about a couple other incentives to give? I'm thinking, let's call it guilt of social pressure to actually buy a few boxes of cookies. Now, if you could do it all over again, if you could do an instant replay. You wouldn't answer the door, would you?

You would stay and watch the Jets play against the Steelers. Although both those teams are terrible. I'm sorry about that, Stephen. You would rather sit on the couch. But once you're at the door, then you feel obliged to help out the brownie scouts. That is very, very important. Now, that's very important not only for the small givers, but that's a very important influence as well for these very, very large givers, these people who will write checks for a million or $10 million, what society tells them they should be doing is an important driver of their behaviors as well. What about the herd mentality? Just the idea that if people hear that others are giving to a cause or if the cause itself announces that there's a big pile of seed money, then that will spur others to give. I think you've hit on something that's very important. You've pinpointed

what economists would call herding or information cascades. And you're exactly right. When others see a person of influence or a person who they think has good knowledge of that charitable cause, if they see them giving, they are much more likely to give themselves. Likewise, if you see a friend giving to a cause, you're much more likely to give to that cause as well. Some years back, John List did some interesting research at East Carolina University. He was sending people door to door raising money for a hurricane relief fund. He wanted to know what methodology worked best.

Is it a good idea to entice donors with a lottery? Things like that. But he also wanted to know if it mattered what the person who knocked on your door looked like. Did an attractive person raise more money than an average-looking person? Now, how do you go about doing that? How do you measure it? First, the researchers hired a bunch of college students who would go door to door. And then they took a photo of each of these student solicitors and sent their pictures to students at a different college,

and they now rated every solicitor's looks on a scale of 1 to 10. Then the solicitors were sent out to knock on doors. What do you think happened? What we find is that one obvious result is that the beautiful women ended up raising the most money of all the solicitors that we had. I'm shocked. Now, interestingly, that result was entirely driven by men answering the door.

Now I am. So, you know, I don't know. So women didn't give more to good looking women, you're saying? No. So women don't give more to good looking women. Women don't give more to good looking men. This entire physical attractiveness result is driven by men answering the door and they see this beautiful woman. They say, oh, tell me more about this relief fund. Tell me how I can help. Oh, I'd love to help. They get out the wallet. They give more money. Now, again, that's more money going to the relief fund. I can guess why they gave. They probably did not give because they really cared that much about the relief fund. But in the end of the day, the charitable organization didn't care because they had

more money coming in. Now, scientifically, this turns out to be really interesting because it tells you that if altruism was the sole explanatory variable for why people give, beauty shouldn't matter. But this is changing an incentive for the solicitees and yes, indeed, the male solicitees end up responding, I want to give more money to beautiful women. Give me a sense of how big this beauty effect is. So let's say one solicitor is ranked a nine out of 10 by unbiased or disinterested parties, and one is ranked a 6. How much more does the 9 raise than the 6? Right. You're looking at roughly 100% increase when you look at going from a 6 to a 9. Oh, my goodness. And what about hair color? So hair color ends up being important as well. And it turns out that blondes certainly have more fun raising more money. You just can't beat a beautiful blonde who's going door to door to raise money for your cause.

Coming up on Freakonomics Radio, John List says that one of the best things you can do to raise money is offer a lottery prize. So my guess is that there are millions of people that would love to have dinner in New York City with Stephen Dubner and Stephen Levin. Millions? I seriously doubt that, but we can give it a try. And if that doesn't work, I wonder if the beauty effect would work on the radio. I personally would donate money to Freakonomics Radio. Here's your host, Stephen Dubner. So if you're trying to raise money for some kind of charity or project,

what's the best way to get people to give? The economist John List has been studying this very question for years. He's learned a good bit. Donors love lotteries, for instance, a chance to win a big prize for donating a little bit of money. Matching grants are also a great idea. But a three-to-one match is no better at raising funds than a one-to-one match. So instead of throwing that extra money out there, you could maybe use it to buy a bunch of blonde hair dye. Here's something else that John List says is incredibly useful in raising money. Put the power in the hands of the donor. I think that the power of control, what I mean is to control the communications. So I control how often you contact me. It seems like every day when I get home,

I have five mailers that I just throw away. And it irritates me because I think that that organization must not be very efficient because they're wasting a lot of money continuously sending me this junk. And I also think the power of providing the good that I want to consume. So think about Freakonomics podcast. One way you could think about raising more money is to say, look, we really want you to help our cause. We need you to give money to help us.

And you could say, look, we're going to change our relationship. We want you, the listener, to help dictate what we talk about, or at least a fraction of the things that we talk about will be determined by our donors. You could think about linking the gift itself to a probability of winning a prize. So my guess is that there are millions of people that would love to have dinner in New York City with Stephen Dubner and Stephen Leavitt. So why not link that kind of prize, say something like every dollar you give will give you one chance to win this lottery prize, which is a night on the town with Dubner and Leavitt. You know, because, okay, so I'm actually going to exploit you because you are the master of fundraising.

And as it happens, we actually are starting our first ever fundraising campaign for Freakonomics Radio. So we've been producing this free podcast for almost four years. And we finally are beginning to ask our listeners to pitch in to subsidize the cost. And so in some ways, you know, we're a victim of the success of the podcast and that one of the biggest expenses is bandwidth, literally digital distribution. So the more people download, the more it costs. And we have about 3 million downloads a month, which is great news, but it gets expensive. And we have producer salaries and equipment and music licensing, all that kind of stuff. So if we wanted to right here on the spot with you, John List, the master of fundraising,

craft a little fundraising appeal that would really work. You know, we don't want to be just one of those people that begs for money and puts on the whole public radio voice to support us. We want to, I mean, that may work. I don't know, but we want it to work. So can you, would you mind giving us a hand, walking us through some specifics that we can try to do to raise money? Sure, absolutely. So a first general theme should be that you appeal to exactly what the donors want to consume. You have to tell the donors, here's what we provide and here's what you will lose, importantly lose. See, I'm

uncomfortable saying that. That feels like a give us money or we'll kill your kitten. Is it true? I mean, if you will really kill the kitten if you don't receive money. No, it's not true. I'm not. So that statement's not true that you don't want to say it. Right. Like if people don't give us any money. We're off the air. Yeah. You know, I guess in a matter of time we would be. But I guess I'm not comfortable with that appeal because you know why? Can I tell you why, John? Absolutely.

It feels it feels desperate. Yeah, that's fair. And the way I feel is we neither are desperate nor, maybe even more so, I don't want to appear desperate. Absolutely. Because I don't like to be around people who are desperate, even if they are. No, I'm with you. No, I'm with you. But also, if you came in and told me, if you would just give $50, we can, for another year, put out these

podcasts, you know what? I turned from a free rider to a giver because I value the podcast at more than $50. Now, I get that you don't want to be desperate. So let's just say a general theme is you want to focus your call on the services that you provide to your listeners. Not that they're going to help somebody else become a better person. Okay. So that's a general theme is what you can do for your givers. Now, secondly, I think it is important to link the podcast dollars that come in with a private good that these people like. So we actually have just drawn up some prizes. They're not that shocking, but they're kind of fun. So like for $60 a year, someone gets a Freakonomics mug.

We're making a great mug. It's a Freakonomics radio mug. It's actually got content on it from the radio. $75 a year, Freakonomics radio t-shirt. And for $360 a year, so these are monthly sustaining memberships, a certain amount a month, $360 a year or $30 a month, they get the signed book. But what you're saying is, as good as those may be, that the lottery component is really good. So if we say everybody that contributes anything at all or even just pretends they want to contribute could be entered into a lottery and we'd bring them to New York and take them out to dinner, maybe have them spend the day here at WNYC at the radio studio and see how we make the sausage. You're saying that's like a no brainer.

We should definitely do that. I think so. I think as long as you can do that under the laws of gambling, which of course you need to check out, I think that is a no-brainer. Now, what about, you mentioned that maybe the most prominent driver of philanthropic giving is what's called warm glow altruism, that people feel, you know, that they get something good that makes them feel, that makes them glow for giving the money. Is there any way that we could pitch Freakonomics Radio, you think, in that direction? I can't think of any. I mean, I find this, you know, not very glowy.

Yeah, I think, so when I think about warm glow, I think about it as if you give money to that cause, you can actually sit around the Thanksgiving table and brag to your mom about how good of a person you are because you just gave money to that specific cause. Yeah, I don't see that working for us. I don't. With Freakonomics Radio, if I sat around the Thanksgiving table and said, hey, mom and dad. You don't get invited back for Christmas. My dad's a truck driver. Yeah. My mom's a secretary and I say, I just, you know what I say, you know what I'm going to give you for Christmas?

It's a $100 charitable contribution to the Freakonomics podcast. Look, I might be out in the snow bank eating my turkey. So I have to think about it further, but I don't see warm glow. I see the Freakonomics podcast as more of a private good, actually. Even though I get that it's a public good, and I get that once you provide it, people can free ride, but the consumption of it ends up being one that, look, I want to consume it because it's going to help me.

Right, right, right. And if I don't have these podcasts for some reason, I might not be as good of a person. So should that be our message? Which is that if you don't help support us, you will become, you know, an idiot? Yeah, but this is a nuclear button that you said you didn't want to push. No, no, no. The nuclear button I didn't want was if you don't support us, we won't make it.

Because I'm not willing to do that. Yeah, but what are you going to do then? Make lower quality? Exactly, yeah. It's just like if we don't have the – we're just going to make this stuff. It's going to make your ears bleed after a while. This is Freakonomics Radio. You won't get out of it what you think you'll want out of it.

Yeah, so I'll call that the quasi-nuclear button. We're going to give you something, but it's going to be crap. But I do like the angle of, you know, appealing to what they're getting individually out of this. I think that has to be it. Is there any kind of positive message you could imagine? Like, you know, keep your brain cells alive. Or keep your neurons firing. There you go. I like that.

Here's what would be really cool, Stephen. If we put one guy in an FMRI listening to some ordinary radio show. I like where you're going. And then put another guy in the fMRI listening to one of, or a series of your podcasts.

And we found that parts of the brain that importantly led to good things in society, you know, better, deeper thinker, more analytical. And you can say, look, we can keep providing this. Look at this guy. Here's a brain on Freakonomics. Here's a brain on Craig. That is awesome, John. So let can keep providing this. Look at this guy. Here's a brain on Freakonomics. Here's

a brain. That is awesome. So let me ask you this. When you sent solicitors door to door to raise money, you found that good looking people do better. They raise more money. Now, this is radio podcast slash radio. And I think I have a great face for radio. So no one's seeing what we look like. But since some people do know what we look like versus other people, should we just get some really good looking, well-known people, one or two, to ask for us? I would say both. I think some people want to see you and Steve. I think other people want to see others who they want to emulate, tell them that this is a good product and they should consume it too. Okay, podcast listeners, that was John List, the mad scientist of fundraising,

and we'd be fools to not follow his advice. So, as John suggested, I asked Steve Levitt to pitch in on our fundraising appeal. Here's what Levitt said. Knowing you, I don't think your objective is really to raise the most money. Your objective is to make the listeners as happy as possible by giving them the option to be happier by giving us some money. Oh, that's such a nice way of putting it.

We are trying to please our listeners by giving them the option of participating. All right, so if that does not appeal to you, let me remind you that we are offering Freakonomics Radio swag. If you come to Freakonomics.com and make a donation, there's a Freakonomics Radio t-shirt, a Freakonomics Radio mug, all brand new. I don't mean brand new as in not used by other people, which they are not, but brand new designs just for this Freakonomics Radio fundraiser. You can also get a signed copy of our book if that would make you happy. Now, John List also told us that it's a good idea to mention that other people are already donating. So let me say this.

We've only just turned on the fundraising button on freeeconomics.com. And already we've got donations pouring in from Roberto in Brazil, from Chris in New Zealand, Christian in Malta, Mark from New Jersey and Daniel from Washington State. But I know what you're thinking. You're thinking, I don't know any of those people. And moreover, I don't know if they're good looking. Remember what John List said about the beauty effect? What we find is that one obvious result is that beautiful women ended up raising the most money of all the solicitors that we had. All right then. In the name of science. I'm Savannah Saunders. I'm a student at Swarthmore College. I'm also a model, and I think you should donate to Freakonomics today. She's with the Wilhelmina Agency in Miami. I advocate for Freakonomics, like family, friends. It's my very favorite. Are we taking off in the Wilhelmina modeling community?

I haven't yet seen it take off there, but I'm sure it will. I will be spreading the word at casting. All right, Savannah, and as you spread this word, what will you actually tell people? Well, Freakonomics Radio is great because it opens people's mind to the hidden side of everything, which is just really special, and no other economists do it like Stephen Dunder and Stephen Lovett. I personally would donate money to Freakonomics, and I think you should too. Now, we also asked John List if good-looking men raised more money. Yeah, we didn't have, we didn't see a lot of that in our data, that beauty effect was really not driven by better-looking men.

That's not anywhere in our data. John List is probably right, but you know what? This is important to us. So just to be sure, I want to cover all our bases. Okay. Hey, Adrian. Hey, what's up? How's it going?

Fantastic. And yourself? Great. Thanks. You sound good. What are you working on? Oh, quite a number of things. So, Adrian, you're an actor and director and musician.

You've also made some really good documentary films. You're an environmental activist, which a lot of people may not know about you. But at this stage, you may still be best known for playing Vincent Chase on Entourage. You think that's the case? I say that would be accurate, yes. Okay. And would you also say it's accurate that you are, well, I guess this is a matter of opinion, but it strikes me, let me put it this way,

it strikes me that you are the best looking human male I have ever met, or maybe that's ever existed. Wow, you always were such a big flirt, weren't you, Stephen? But, I mean, you're a good looking fellow. We can agree on that? Well, thank you. All right, well, here're a good-looking fellow. We can agree on that? Well, thank you. All right. Here's what I'm getting to. So, even though this is radio, people can't see you,

they do know what you, Adrian Grenier, look like. So I'm wondering if you would just turn on your good-lookingness over the radio and help us out? All right. One, two, three. How was that? That was good. I'm hearing it.

I'm feeling it. So what are you willing to say for us? Are you willing to say that, hey, I'm Adrian Grenier and I'm a certified attractive person? I mean, it's up to you. I don't know. Beauty is in the eye of the beholder. I really do believe that. But if it'll help you out, I would just say maybe, you know,

you could go to my Instagram at Adrian Grenier, and if you like what you see, then support Freakonomics Radio. All right, we've almost emptied our bag of tricks. But as John List told us, people love a lottery. So let's do it. If you go to Freakonomics.com and click on the Donate button, you'll automatically be entered into a lottery to come to New York, have some lunch with me and the Freakonomics radio team, even spend carry home, which means you may have to buy an extra bag and pay a bag check fee. And you know what? We'll pay that, too. You don't even have to make a donation to enter the lottery, but of course, we hope you will. So thanks to all of you for listening, as always, and a special thanks to

anyone who does go to Freakonomics.com to make a donation. And I look forward to meeting one of you very soon. Hey, podcast listeners, on next week's show, let's say your cat dies. First of all, I'm sorry for your loss, but now you get him cremated and you want the ashes back. How do you know the ashes you get back are his? Looks like bone to me. This is not residue from what you sent them. Please join us for the troubled cremation of Stevie the cat.

That's next time on Freakonomics Radio. Freakonomics Radio is produced by WNYC and Dubner Productions. Our staff includes David Herman, Greg Rosalski, Beret Lambs, Susie Lechtenberg, and Chris Bannon. If you want more Freakonomics Radio, you can subscribe to our podcast on iTunes or go to Freakonomics.com, where you'll find lots of radio, a blog, the books, and more. Bye.