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The economics of giving: how our emotions get in the way of helping others

Reuters/Thierry Roge
Because malaria is an ongoing problem, we tend to ignore it.
By Annie Duflo

Executive Director, Innovations for Poverty Action

Published This article is more than 2 years old.

Donations to charities peak at the end of the year. But the number of causes and organizations asking for contributions can be overwhelming—which makes for a lot of uncertainty about whether we’re doing the most we can with our money.

I run a nonprofit that uses behavioral insights and rigorous evaluations of program effectiveness to shape better programs and policies aimed at helping the world’s poor. Here are some tips we’ve learned about effective giving:

1. Ignore the overhead myth. How much a charity spends on administrative costs is an easily obtainable number, but a misleading one. It tells you nothing about whether the organization is delivering good results. Instead, look to organizations like The Life You Can Save and GiveWell, which recommend charities based on their effectiveness.

Check to see if the charities you are considering invest in rigorous outside evaluations or use existing evaluations of similar programs, so they know whether their methods are paying off. And reward organizations that are willing to change course if the evaluations make it clear that their programs are not working.

2. Recognize immediacy bias. Research has shown we’re drawn to emotionally immediate causes, even if they’re not hurting the greatest number of people. For example, malaria and diarrheal disease kill far more people than natural disasters like earthquakes. But since these diseases are ongoing, they don’t make the news as often, and they don’t evoke the same emotional urgency in us.

However, the same studies also show that our rational judgement prevails if we wait a day between seeing an emotional appeal video and making charity decisions. So it’s fine to let a viral video motivate you to give—but don’t choose your cause (or charity) in the heat of the moment.

3. Give where your dollars can help the most people. “Charity begins at home,” the popular saying goes. It can be tempting to help the cause that we know or is close to us, but the one that’s familiar isn’t always the best investment.

But the truth is that the need is greater in poor countries, and the cost of helping people is much cheaper. Supporting the hospital that cared for a loved one may be a cause that’s closer to your heart. But your dollar goes much further abroad.

4. Be aware of mental accounting–the tendency to categorize our money into different mental “bins.” Making artificial distinctions about spending can get in the way of making effective decisions, but you can also use it to your advantage. One study showed that when savers were given the opportunity to label an additional savings account with a particular goal they wanted to meet, such as buying a house or paying for school fees, they saved 30% more.

Since the holiday season tends to coincide with a lot of shopping, it’s easy to wind up short on cash to donate elsewhere. Separate out your charity dollars mentally in advance to make sure they’re not competing with other year-end spending—and if you didn’t do that this year, make a commitment to do so next year.

5. Think about your future self. In Homer’s Odyssey, Odysseus knew he wouldn’t be able to resist the sirens’ temptation to steer his ship into the rocks–so he made his men tie him to the mast.

Similarly, we have found that behavioral “commitment devices” that allow people to restrict access to their accounts helped them increase their savings (by 82%!). You can make your own commitment device for charitable giving: When you make this year’s donations, set up a monthly credit-card donation for the coming year to make sure that you can donate year-round.

Our emotions can be quite helpful in motivating us to give. They allow us to empathize with people we’ve never met before. But letting our emotions guide our giving decisions entirely can lead to less effective outcomes for people in need. Using your head and your heart will make sure your dollars help the most people they can.

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