Freakonomics Radio - 51. What Makes a Donor Donate?

Episode Date: November 29, 2011

The science of charity, with economist John List.

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little bit of Freakonomics Radio, that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It's the hidden side of everything. This week, in the spirit of the season, Dubner weaves a tale of charitable giving as only Freakonomics can do it. Today, we begin in Australia with a story of Dick Smith. Dick Smith made a lot of money with his chain of electronics stores. Now, he says, he gives 20% of his income to charity. He says Australians don't give nearly enough, so he started a campaign to convince them to give more.

Now, I've written to Rupert. I know him. That's Rupert Murdoch he's talking about. And he sort of made out to me that he does give some money away, but it's done confidentially. But talking to his staff, Rupert Murdoch's staff, they say, no, Dick, there is not a generous bone in his body. Smith continued with the gentle approach, hoping a bit of quiet persuasion would make Australians open their wallets like the rich Americans you hear about so often. But I've not succeeded. I've completely failed. So now I'm going publicly and outing these people and at least embarrassing them,

hoping that one will break ranks and fulfill obligations of putting something back into society. As you can imagine, this shame game didn't sit so well with everyone. There have been articles. The article that I believe you're referring to was, is Dick Smith just a d***head? Writer Matthew Beachy thinks this is a bad idea. I think he's stirring the pot a bit.

It's too soon to say how well Smith's shaming routine will work. But it made me wonder, when it comes to charitable giving, what does work? I asked someone who knows. I'm John List, and I'm a professor at the University of Chicago, and I focus on the economics of charity. All right, so let's say you're trying to raise money for, I don't know, a public radio station. Please help us continue to bring you the news and information from around the world that you value. Contribute today and thanks. John List discovered that a good way to start raising money is by telling people that you've put some of your own money in the pot already.

You know, seed money. So what we found is that the more seed money that you had, not only induced more people to give, but those people actually gave more money. All right. So seed money works. What about the old matching gift trick? What the experts will tell you is that the larger the match is, the more effective or the more dollars you will raise. And that's just flat out false.

What List found is that a one-to-one match does work well, but increasing the match to two-to or three to one doesn't do any additional good. But here's something that is worthwhile. Raffles. If you're serious about raising money, offer people a prize. And just by doing that, you end up increasing gifts by as much as 100%. And here's my favorite. It's called the once and done. It lets you opt out. It's giving the control of the relationship to the solicitee. Here's how it works. Since charities know it's annoying to constantly get solicitations in the mail, they give you a choice. If you send in some money today and then check a box opting out will never bother you again. Given the once and done proposition, they not only give more money in that particular fundraising

drive, but they do not check the box. And in future months, they end up giving more money than people who never received the once and done proposition. Since John List seems to know all the charity tricks that work, I asked him about Dick Smith, the Australian electronics mogul and his shaming idea. You think that is a good strategy for fundraising or is Dick Smith, just as one Australian columnist put it, just a d***head. Well, I think the strategy is probably good in the short run, but I wonder in the long run if those millionaires or billionaires might flee the continent and seek refuge elsewhere. And then you have a short-run gain but a long-run loss.

I'm Stephen Dubner for Marketplace. Freakonomics Radio is the website Dubner's back in a couple of weeks.