Why Do People Give? An Experimental Test of Pure and Impure Altruism Lise Vesterlund ∗ Mark Ottoni-Wilhelm † Huan Xie ‡ ∗ University of Pittsburgh † IUPUI and IU Lilly Family School of Philanthropy ‡ Concordia University Workshop in Multidisciplinary Philanthropic Studies March 13, 2014
Overview • Standard economic model of charitable giving is impure altruism. • Dual-motive theory: altruism and egoism/warm glow • Cornes & Sandler (1984), Steinberg (1987), Andreoni (1989) • Batson, Darley, & Coke (1978): “Motivation for helping may be a mixture of altruistic and egoistic desires.” • Lots of work over the past 25 years has been built on this model. • Andreoni (2006), Vesterlund (2010) • Twenty-five Years of Impure Altruism, UCSD
Overview • However, there has not been a test of a prediction of the impure altruism model that was not purposefully built into the model to begin with. • Nor a test that, for all practical purposes, the model could fail. • In this paper we conduct a charitable giving experiment that tests a prediction not purposefully built into the model. • Results consistent with impure altruism – the model passes the test, but ... • ... egoism/warm glow motives among the participants were weak. • Most of the giving in the experiment was due to altruism.
Overview • Innovations • New test that is closely integrated with theory. • New experimental design that carefully creates the theoretical framework inside the lab. • Measure individual heterogeneity in altruism and egoism/warm glow. • Significance • Fundamental question about human behavior – existence of altruism • The strong altruistic motivation we see in the experiment differs from previous experimental results that have suggested egoism/warm glow to be the predominant motive people give.
Theory - a giving situation • You are each paired with a different child (between 1 and 12 years old). • The child’s family home has been destroyed by fire. • You will be given money which you can allocate between the child and yourself. • The money you allocate to the child will be given to the Red Cross. • The Red Cross will use the money to buy books for the child, and will give the books to the child immediately after a fire.
Theory - a giving situation • The Red Cross provides the family with temporary shelter, clothing, a meal, a ”comfort bag.” • The Red Cross has no funds for any comfort items for the children. • In addition to the amount of your money you allocate for the child’s books, a foundation has agreed to donate a fixed amount of money towards the child. • The foundation’s fixed donation is independent of your allocation. • Hence, the total amount the Red Cross will be able to spend on books for the the child is the foundation’s fixed donation plus the allocation you make to the child.
Theory - a giving situation • Why use the funds to buy books? • The books provide a great bridge for Red Cross volunteers to connect with kids and get them talking about what they’ve experienced.
Theory - a giving situation • What will you decide to do? • The foundation will donate $4 towards the child. • You have $46 to allocate between the child and you. • How much will you allocate to the child? • Deciding . . .
Experiment Figure 1. Foundation = $4, Your income = $46. .4 .3 Fraction .2 .1 0 0 10 20 30 40 46 Dollars allocated to the child Source: Vesterlund, Ottoni-Wilhelm, Xie (2014).
Reflection Think for a moment: Why did you pick the amount you allocated to the child? What motivated you?
Theory - Why did you pick the amount you allocated to the child? • Egoism/warm glow motivations – intensive focus on . . . • + . . . seek positive self-evaluation of identity (moral principles) • – . . . avoid self-punishment for not helping (guilt) • + . . . seek approbation (extrinsic) • – . . . avoid shame (extrinsic) • 3 more intrinsic: • personal distress - alleviate the distress you feel hearing about the child and the fire. • seek “empathic joy” • seek relief of negative mood state.
Theory - Why did you pick the amount you allocated to the child? • Altruistic motivations – intensive focus on the amount of books needed to accomplish the goal. • What amount of books are needed to allow the volunteers to ... • ... connect with the child and get her/him talking about what they’ve experienced? • ... initiate a process through which the child will begin to recover a sense of well-being?
Theory - a DIFFERENT giving situation • What will you decide to do? • The foundation will donate $10 towards the child. • You have $40 to allocate between the child and you. • How much will you allocate to the child? • Deciding . . .
Experiment: situations 1 and 2 Figure 3. Two decisions. .4 .3 Fraction .2 .1 0 0 10 20 30 40 46 Dollars allocated to a child Fdtn = $10, You = $40 Fdtn = $4, You = $46 Source: Vesterlund, Ottoni-Wilhelm, Xie (2014).
Reflection again Did you change the amount you allocated to the child? Why?
Theory - Pure Altruism • If your goal was to get $15 to the Red Cross because that is enough books to help the volunteers connect with the child, then the two budgets you were just faced with—($4, $46) and ($10, $40)—are equivalent. • Faced with ( $4, $46), you give $11 (books = $4 + your $11). • Faced with ($10, $40), you give $5 (books = $10 + your $5). • The total amount of money in play was the same ($50)...“balanced-budget.” • When the foundation went from $4 → $10 (+ $6), you went from $11 → $5 ( − $6). • Crowd-out (balanced-budget) = − $6 +$6 = − 1
Theory - Pure Altruism - Income effect • What if we held the foundation’s donation fixed at $4 and increase your income from $40 to $46? • Faced with ( $4, $40), say you give $9 (books = $4 + your $9 = $13). • Faced with ( $4, $46), you give $11 as before (books = $4 + your $11 = $15). • Income effect = $15 − $13 $46 − $40 = +$2 +$6 = + . 33 (from perspective of books) $46 − $40 = +$2 $11 − $9 • Income effect = +$6 = + . 33 (from perspective of your contribution)
Theory - Pure Altruism - Unfunded crowd-out • What if when the foundation’s donation went up from $4 → $10 we held your income fixed at $40? (the foundation’s increase is not funded from your income...“unfunded”) • Faced with ( $4, $40), you give $9 as before (books = $4 + your $9 = $13). • Faced with ($10, $40), you give $5 as before (books = $10 + your $5 = $15). • The total amount of money in play has gone up from $44 → $50. • When the foundation went from $4 → $10 (+ $6), you went from $9 → $5 ( − $4). • Income effect = $15 − $13 $50 − $44 = +$2 +$6 = + . 33 (from perspective of books) $10 − $4 = − $4 $5 − $9 • Crowd-out (unfunded) = +$6 = − . 67 (from perspective of your contribution) • Crowd-out (unfunded) = − 1 + Income effect = − 1 + .33
Theory - Pure Altruism - In-kind transfers • Standard intermediate microeconomics course – food stamps example. • Balanced-budget • Person gets $4 per week in food stamps and has $46 in cash income, say they spend %15 week on food ($4 food stamps + $11 cash) and $35 on other goods (cash). • If $10 per week in food stamps and has $40 in cash income, would still spend %15 week on food ($10 food stamps + $5 cash) and $35 on other goods (cash). • Unfunded • Person gets $4 per week in food stamps and has $40 in cash income, they spend $13 on food ($4 food stamps + $9) and $31 on other goods. • If $10 per week in food stamps and $40 in cash income, would spend %15 week on food ($10 food stamps + $5 cash) and $35 on other goods (cash). • Some of the $6 increase in food stamps was spent on food (.33 – the income effect on food) and the rest was spend on other goods (.67 – the income effect on other goods).
Theory - Pure Altruism • Increasing cash income and increasing amount of in-kind (food stamps, books–charity) is the same. • Income effect on books–charity is called q 1 • In the previous example q 1 = .33
Theory - EGOISM/Warm Glow - Unfunded crowd-out • If you said “You know what, what happened to that kid is terrible, and it’s my duty to help out. I’ll give $20 out of my $40) income.” • Faced with ( $4, $40), you give $20 as before (books = $4 + your $20 = $24). • Faced with ($10, $40)—“still my duty to give $20”—(books = $10 + $20 = $30). • The total amount of money in play has gone up from $44 → $50. • When the foundation went from $4 → $10 (+ $6), you remained at $20. • Income effect = $30 − $24 $50 − $44 = +$6 +$6 = +1 . 00 (from perspective of books) • Crowd-out (unfunded) = $20 − $20 $0 $10 − $4 = +$6 = 0 . 00 (from perspective of your contribution) • Crowd-out (unfunded) = − 1 + (Income effect = +1) = 0.00
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