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private capital & the public good

All Things Impact for July 1: how insights from behavioral science can inform charitable giving

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: effective philanthropy, impact investing (in the private markets), responsible investing (in the public markets) and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.
 
Programming note: I will be out of the office for the entire month of July (vacation, work travel, training program), so look for the next All Things Impact in August.

Here are four links worth your time (plus job postings and a calendar of upcoming events):

1. Effective Philanthropy: how insights from behavioral science can inform charitable giving
I’ve spent years trying to understand how we might influence donors to give to the truly high-performing nonprofits, helping to channel a genuine impulse to give – individual US donors gave $258 billion in 2014 – towards the most effective organizations. Why aren’t donors more rational? ideas42, a behavior science research organization, with support from the Bill & Melinda Gates Foundation, tried to uncover a mystery in charitable giving in the US: “individuals may be giving in ways that don’t align with their true preferences or intentions.” Why might this be so? In their must-read report, ideas42 suggests that “[i]nsights from behavioral science can help explain how people currently make charitable decisions and inform new ways to reduce biases or remove barriers to action. Charitable dollars could then be better allocated, with critical resources directed toward the most urgent issues and effective solutions. Further, aligning individual preferences and donations could increase the total level of giving.”
 
Here are some more highlights from this fascinating report:

Social Norms
Humans rely on a wide range of external cues when deciding how to act in any given situation. Because we are social creatures, one of the most powerful cues is the perceived social norm: people tend to observe what others are doing and do the same – especially if they identify with the larger group. Letting prospective donors know that people like them are contributing to charitable causes can boost participation, and providing a benchmark for how much others have given can influence donation amounts.
  • Communicating norms increases participation.
  • Visible indicators of participation influence giving decisions.
  • Mentioning another donor’s contribution level can increase donation amounts. I
  • Revealing similarities between current and prospective donors increases average donations
Signaling and Matching
In charitable giving, the behavior of lead actors can communicate information about organizational quality. Signals about who else has already given, and how much, can influence decisions to give. These cues are especially powerful when people aren’t sure about whether an organization merits their support, since potential donors who don’t have enough information are much more likely to do nothing than to conduct their own research and due diligence.
  • Sharing information about major supporters validates your organization.
  • Seed money increases donations.
  • Lead gifts encourage participation and higher donation amounts.
Image and Identity
Each of us has a multi-faceted identity: we are parents, friends, consumers, investors, advocates, artists, and much more. Most of the time, we seek to act in accordance with the way we see ourselves or hope to be seen by others. Encouraging people to identify as charitable donors, or reminding them that their actions influence the way they are perceived by others, can increase contributions.
  • Reaffirming donors’ identities as charitable, giving people increases donations.
  • Reminding people of their past behavior as “donors” increases contributions.
  • Offering public recognition increases donations.
  • Selective recognition increases donations.
Emotions
People often make decisions based on their positive or negative feelings toward a subject, rather than on objective analysis. Different kinds of information evoke varying degrees of emotion, and strong positive emotions seem to encourage prosocial behavior.
  • People tend to like – and support – people who are similar to themselves
  • Photographs that elicit emotion increase donations.
  • Sharing information about an “identifiable victim” heightens emotions.
  • Considering a volunteer experience activates an emotional mindset and increases generosity.
  • Deliberative thought suppresses emotion-based giving.
Avoidance
It’s often hard for people to say no, including when they’re asked to give to charitable organizations. Direct, personal solicitations can therefore increase donations, but resulting gifts may not reflect true support for particular causes. Further, some people may preemptively avoid requests to donate.
  • Avoiding emotional stories and requests to donate helps people justify decisions not to give.
  • Avoiding direct, verbal requests to donate defends against impulse-giving.
  • People may give to avoid saying no.
Time-Inconsistency
Preferences change over time, especially when it comes to money. People tend to be present-biased, valuing today’s money more than they value tomorrow’s. This means that losses in the present are more painful than losses at some future point. Asking donors to commit today to donating funds later can boost total contributions.
  • Asking donors to “Give More Tomorrow” encourages generosity.
Hassle Factors and Procrastination
“Hassle factors” are small roadblocks that must be dealt with in order to complete an action. Despite being small in scope, hassle factors can lead to out-sized consequences if not resolved (e.g., needing to find a stamp could result in a late or missed rent payment). These seemingly minor inconveniences are at play in charitable giving as well, and can lead people to procrastinate, then forget about following through, or decide not to give after all.
  • Making it easier to donate encourages participation.
  • Reminders encourage participation.
  • Even minor inconveniences can depress giving.
Small Incentives
When thoughtfully designed, incentives can attract attention and inspire action. For example, providing small, nonmonetary gifts when making requests can sometimes trigger desires to reciprocate. However, the danger of incentivizing prosocial behaviors is that the external reward will “crowd out” the intrinsic desire to contribute by turning a donation into a transaction.
  • Lottery prizes increase the likelihood of giving.
  • Nonmonetary gifts encourage donations.

 
2. Impact Investing: the Vatican puts on an impact investing conference
Stop me if you’ve heard this one: a priest, a congressman, and a banker all walk into an impact investing conference. There is no punchline…this really happened this week at the Second Vatican Conference on Impact Investing, “Making the Year of Mercy a Year of Impact for the Poor.” Here is a roundup of the best tweets and photos from the gathering, and Naki Mendoza of Devex Impact covered the gathering:
 

"When a nearly 2,000-year old institution with more than a billion followers says that it wants to apply market-based solutions to solve the world’s most intractable problems, influential leaders are bound to take notice…
 
“The church’s growing role as an impact investor and investee are both significant. Like other large institutional investors, an organization as old and well endowed as the church has the financial capacity to create large scale social change. The church’s involvement in impact investing can also influence other religious organizations to pursue similar strategies," [Aspen Network of Development Entrepreneurs executive director Randall] Kempner said.
 
For the church itself, the more profound change would likely be the way that it conducts its affairs by re-orienting some of its work from charity-based to capital enterprise models. Today, most church enterprises are not financially sustainable and rely on donations to fund their operations.
 
“To transition from a charity-based model to one which is financially sustainable through scale and the proper use of capital and cost structures is not easy,” said Carolyn Woo, chief executive of Catholic Relief Services and the former dean of the University of Notre Dame’s Mendoza College of Business. “Once the church invites financiers, it involves a transition of mindset, a transition in competencies to develop as social entrepreneurs and a transition of governance.”
 
…Impact investors place a particular premium on innovative and efficient distribution models. Social enterprise funders often say that even the most groundbreaking technologies are only as good as the models that distribute them to disparate communities in rural areas.
 
The global structure of church organizations also provides a form of risk mitigation for potential investors. Church enterprises are often backed by the funds and resources of peer organizations, both domestically and abroad, giving would-be investors a bit of a financial cushion.
 
The goal is to now reorient church organizations toward more commercial models."


3. Responsible Investing: Under Armour’s investment in Baltimore
One of the impacts that companies have is on the places where they operate. Kevin Plank, the CEO of the athletic apparel company Under Armour, is building a 4 million square-foot headquarters for the company in Baltimore, as part of a larger urban revitalization through his real estate investment arm, Sagamore Development. In a profile in BloombergBuisnessweek, Rachel Monroe explores the impact of his ambitious plans, whereby he’s essentially building a neighborhood from scratch over 50 city blocks, called Port Covington:

“In cities struggling with postindustrial disinvestment and high rates of unemployment and poverty, such investors are often treated as saviors. “I would like to also extend a sense of deep appreciation and true excitement on the part of the city for what we see presented here,” Baltimore’s city planning director, Tom Stosur, said after Sagamore revealed the Port Covington master plan.
 
Plank’s ideas for Port Covington have also faced criticism that cuts against the savior narrative, particularly after Sagamore announced this spring that the arrangement would seek $1.1 billion in support from local, state, and federal governments, including $535 million in tax increment financing, or TIF, from the city of Baltimore. The TIF money would go toward infrastructure improvements and come from municipal bonds issued by the city, to be repaid by new property taxes eventually generated by the project. MuniCap, a Maryland consulting firm that analyzed the project, estimates it won’t create enough tax revenue to repay the TIF until 2038. More worrying, perhaps, is that the TIF request is so substantial, it would limit the city’s ability to issue other bonds without hurting its credit rating. “Baltimore is a deeply segregated city and has been for the past century,” says Lawrence Brown, a professor of community health and policy at Morgan State University. “A project like Port Covington, where there’s no fair-housing mandate and no promise for living wages, is really a missed opportunity. It’s reifying and intensifying the ‘two Baltimores’ problem we have now.” In its sweeping vision and unprecedented costs, Port Covington is an example of the increasing influence corporations are having on city planning.
 
Others are concerned about earmarking so much money for a new development company with no experience working at this scale. During a recent meeting, members of the city’s Urban Design and Architectural Review Board pointed out that preliminary designs for Port Covington looked something like a millennial daydream, one that included a whiskey distillery and makerspace, but no post office or fire station or library or school. (A subsequent plan corrected those omissions.) Asked if he is worried about criticism that he’s essentially building a synthetic, Disneyland version of Baltimore—all crab boils and racehorses—Plank says, “Why is that a bad thing? I love Disneyland. The purpose of Disneyland is to make people smile.”

 
4. Wildcard Topic: How "Culturally Constructed Ignorance" Wins the Day
Reflecting on the Brexit vote, Barry Ritholtz writes in Bloomberg View about agnotology, a word coined by Stanford University professor Robert N. Proctor, who described it as “culturally constructed ignorance, created by special interest groups to create confusion and suppress the truth in a societally important issue.”

"It’s a term worth knowing, since it is going global...
  
We see the results in a variety of public-policy issues where one side has manufactured enough doubt through false statements, inflammatory rhetoric and data from dubious sources that they can mislead public opinion in a significant way, at least for a time.
 
The backers of each of these public issues have used the technique of culturally constructed ignorance to affect public opinion, direct government policy and alter regulatory oversight. Here a just a few examples:
  • Iraq has weapons of mass destruction
  • Genetically modified crops are dangerous
  • Global warming is a scientific hoax
  • Vaccines cause autism
  • Tax cuts pay for themselves
  • Poor people caused the financial crisis
Each of these is, of course, wrong and lacking in any factual basis. Nevertheless, they have a following...
Democracy is based on the concept of a marketplace of ideas. Supreme Court Justice Oliver Wendell Holmes described the “free trade in ideas” within “the competition of the market.” By the time voters head to the polls, the participants will have chewed over the finer points, the details will be well known to all and, for the most part, everyone more or less understands what’s at stake.
 
Or not.
 
The assumption underlying policy debates -- their true purpose in a democracy -- is to engage in a principled argument in order to reach a discernible truth. It isn’t, as we have seen more and more often, to win a short-term victory at any and all costs .
 
Jonathan Swift once wrote, “Falsehood flies, and the Truth comes limping after it.” That was never truer than today, when falsehoods and Facebook hoaxes can travel around the world at the click of a mouse.
 
Hyperbole and exaggeration is one thing, creating an alternative universe is something else entirely.


5. Job Postings


6. Upcoming Events
Sept 6-8  PRI in Person (Singapore) Responsible Investing
Sept 13-16  SOCAP (SF) Impact Investing
Sept 26-28 Exponent Philanthropy Conference (Chicago) Effective Philanthropy
Sept 26-28 ANDE Conference (Lessburg, Virginia) Impact Investing
Oct 9-14  Opportunity Collaboration  (Cancun Yucatan) Impact Investing
Oct 18  High Water Women (NYC) Impact Investing
Oct 18-20 Conscious Capitalism CEO Summit (Austin, TX) Responsible Investing
Nov 3-5  Net Impact (Philadelphia) Various
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing


That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like this baby gorilla who is excited to pound his chest for the first time). 

Until August, thanks for reading!
Brian

Brian Walsh
Head of Impact at Liquidnet. Full Bio.