Behavioral Economics and the NFP Organization

Behavioral economics and finance have become all the rage in academic circles over the last several decades. All you have to do to confirm this is look at the list of behavioral economists who have won the Nobel prize since 2000. They include Daniel Kahneman (2002), Robert Shiller (2013), and Richard Thaler (2018), all of whom have been connected with this school of thought.  

How can behavioral economics help the NFP manager?  Well, here are five specific suggestions:

• In their book Nudge, Thaler and Cass Sunstein suggest donations to charities can be increased with a Give More Tomorrow program. Donors are asked to give a small amount to their favorite charity beginning in two months and to commit to increasing the amount every year.  A study by Anne Breman in 2006 found this simple nudge increased donations by 32 percent.  Thaler and Sunstein also suggested the use of a charity debit card, but that proposal doesn’t seem to have gathered  a lot of traction.
• We are all familiar with charities that have donation tiers.  For instance, if you donate $x you will be a Friend of the Charity.  If you donate $y you will be a Patron of the Charity and so forth. Strategically set the tiers, as donors will calibrate their contributions to achieve their desired level of recognition.   This is an example of impure altruism, but more on that in a future blog.
• Use a silent phase for capital campaigns.  Suppose there are two charities that wish to raise $100,000.  One simply announces the goal and asks for contributions.  Another raises seed money of say $50,000 before announcing the capital campaign. The second charity will receive greater donations than the first.  People want to donate toward an achievable  goal. They can readily see how their contribution will help get the charity to that goal
• Put a face on your fundraising drive. People are more willing to donate when there is someone like them in need. Donors can identify and empathize with a real person. They can see how their donation will help this one person and will be more likely to donate.. Put another way, the bigger the problem you are trying to solve the less people will donate. For example, suppose you start a fund drive to end global warming. This will be rough sledding as donors simply can’t connect or comprehend the enormity of the issue. They can’t see how their small donation will help end such a huge crisis. 
• Try to build a sense of community with donors, making them “one of us”. Donors want to belong to something good.  It gives them a “warm glow effect”. More on that in a future blog as well.