The generosity collapse

People give when they're asked. 

Jim Andreoni and Justin Rao have  proved it. They ran the following experiment: one person, the allocator, was given 100 'money units', worth $10 in real money. She was free to choose how much to keep for herself and how much to give to another person, the recipient. The recipient, however, had an opportunity to ask for a particular division of money - 50/50, say, or 30/70 or 60/40.

It turns out that people who ask for more get more - up to a point. When the recipient asks for, say, 70 percent of the money in the envelope, the allocator is quite likely to say "sorry" and give nothing. But a recipient who asks for a 50/50 split on average receives more than the recipient who asks for nothing.

Andreoni and Rao find a relationship between the percentage asked for and the percentage given that looks like this:

  

The pass value is the percentage - or, equivalently, the number of money units -- the allocator gives the receiver.

Now a true Canadian cannot look at this graph without thinking: fish. The relationship between fishing effort and fish landings looks just the same:

 

Initially more boats on the water and more time spent fishing leads to a higher catch. Eventually, however, fish stocks are depleted. More effort results in lower catches when over-fishing culls the mature adults needed reproduce and maintain the stock. Eventually, the fishery may collapse, as happened with Atlantic cod.

There’s a simple economic explanation of why stocks are over-exploited.

When an average fishermen goes out to sea, he gets an average catch. His return is equal to the average benefit of fishing effort, and so he will expend effort until the average benefit of going fishing equals the cost of doing so.

What each fisherman fails to take into account is the fact that his or her catch reduces the catches of everyone else, now and in the future.   

In an ideal world, people would only fish if the increase in the total number of fish caught - the marginal social benefit of fishing -- was greater than the cost of going out in a boat. Yet because each additional fisherman can expect to get the average catch, not the marginal catch, he may continue to fish even when his efforts decrease the total economic value of the fishery. 

And once a fishery is over exploited, all it takes is a series of unfortunate events -- such as an El Nino current, technological change, or bad government policies -- to bring about stock collapse. 

The same economic logic applies to fishing for charitable donations. Fundraisers ignore the fact that their efforts reduce the catch of others. 

At first, that does not matter - as Andreoni and Rao show, initially when more is asked for, more is given. But once people asked for anything more than a fair 50/50 split, donations fell off rapidly.

Andreoni and Rao's game involved only two people. As a result, very few recipients ever asked for more than what might be considered fair. In the real world, however, multiple fundraisers chase the same donors. Each request for money, taken in isolation, is perfectly reasonable. In aggregate, however, the total amount requested by fundraisers could easily be more than donors consider to be fair.

Faced with a barrage of requests, a donor's generosity collapses. People begin screening their calls, throwing requests for funds straight into the recycling bin, or putting the phone down with a single word: "sorry."

With altruism, as with fish, overexploitation is partly attributable to technological change: lower telecommunication costs and new forms of communication reduce the cost of requesting funds. Data mining is the sonar of the charitable world, allowing potential donors to be located precisely. 

Yet not all common pool resources are exploited to the point of collapse, and people still give to charity. Elinor Ostrom has argued that it is possible to avoid the tragedy of the commons if certain conditions hold - in particular, there must be clearly defined boundaries.

"Sorry, I only give to people I know."

"Sorry, I don't give over the phone."

"Sorry, I only give through the United Way."

These are sensible strategies. I use them myself. 

Yet how can altruism bridge the yawning gaps between rich and poor, the secure and those in need, when we fence ourselves off from others?

In Andreoni and Rao's game, the generosity collapse happened when the recipient asked for more than 50 percent of the amount in the envelope.

Comments

[Jim Rootham]

I don't think altruism should be expected to do that.
Or at least not that kind of altruism.
If you want to bridge the yawning gaps you need to reorganize society so that the gaps do not appear.
It's why I engage in the kinds of politics I do. That engagement is altruistic, but it runs on a different scale than charity.

[Declan]

Well said Jim.

[White Rabbit]

Jim: building a society where there's "equal opportunity" would require massive changes to how modern societies work:

Some people get born into a substantial starting capital. Some people inherit superior genes that make them excellent sportsmen. Some people are plain out lucky. None of it is their own virtue.

Then there's people who get born into a poor background. Some people inherit sub-par genes that hinder them. Some people are plain unlucky. None of it is their own fault.

To 'even out' such fundamental and unfair imbalances in opportunity, we'd have to build a massive utopian state that would forbid inheritance, would engage in gene engineering and would artificially eliminate all venues of luck - and more.

Instead the much more realistic approach is to try to balance out what cannot be balanced: i.e. to not make "opportunities" fair (the world is not fair), but to dampen the arbitrary excesses of the "outcome" to a certain degree: those who have disabilities should receive assistance, those with a poor background should receive assistance tuition and those who are lucky to have earned a ton of money should be taxed progressively more.

I find it quite ironic that on the right they often stress the creation of "equal opportunities", without realizing that if we ever took that idea at face value and pursued "equal opportunities" seriously, our way of life would have to change drastically.

The same people on the right often oppose the much less drastic, much more pragmatic "buffering of luck/unlock volatility effects" policies.

[White Rabbit]

Frances: interesting observations!

There's a possible link in an unrelated area: it is an interesting fact that in many european countries the top income bracket is 50% or close to 50%.

Maybe that is so partly because, according to your article, 50% is considered the "limit of fairness" by humans and anything above that is considered (perhaps irrationally) way too much - creating a lot of political pressure to not raise the tax rate beyond that threshold.

[Frances Woolley]

White Rabbit - you're right. I'd noticed that same fact myself, but never made the connection. Thank you.

This has interesting implications for the guaranteed annual income etc discussion that happens frequently on the blog. For income, there's this restriction that anything above 50% isn't 'fair', but if the issue is reduction of benefits rather than the paying of taxes, I don't think the same fairness frame applies.

Jim, I share your skepticism on the ability of private charity to reduce income inequality substantially. The point I was making in this post was a much more micro-level one, about the psychology of individual giving.

[Mark]

Provides some economic theory to the anger I feel when passing between 1 to 5 people with clipboards asking me if 'I care about children/the planet/the homeless' while I'm just trying to walk home.

[Frances Woolley]

Mark, and the thing is, I bet you do care about children/the planet/the homeless. But you're being pushed over the top of the curve.

[calmo]

Timely topic Frances as Charities are suffering and promise to suffer further with the oncoming austerity measures.
I'm not sure what I was expecting from the title 'The Generosity Collapse' but it wasn't fish...definitely not Atlantic cod, nor the depletion of that resource. But I have been known to rise to the occasion and land something...the takeaway.
Alrighty then.
Our charitable propensities have lapsed like the mighty Atlantic Cod, as depicted by the most beautiful graph ever to grace the pages of any economic document (is the way I would mount this catch in my rec room)...on account of BAAAAAD fisheries management...like Jim alludes to maybe: BAAAAD organization characterized by a few Stupendous Draggers taking all the fish.
Hard to believe how beautiful the curve is depicting this blunt story, but I cannot but defend the curve...such a beautiful takeaway.
Philanthropy, (not quite the same thing as generosity nor the same thing as altruism), the last time I looked, was confined to Gates and Buffet. The next dozen billionaires in the lineup gave next to nothing.
I did notice that Sally Ann was looking for bell-ringers at Xmas --a sign that generosity, common generosity --the real thing and the hook that brought me this far, was lacking.
And could be collapsing or collapsed as you say. "fenced off from others" pretty much identifies the hunkered down posture of many still adjusting to new and harsher economic realities. But it may not be just a cyclical collapse...or a seasonal fence, but a structural feature that goes along with goods and services that are increasingly not only foreign but alien: we don't care where they came from or what services they provide as long as they are economical choices.
Ok, that B it: my takeaway is that the increasingly global nature of our economically driven lives is alienating us.

[Jim Rootham]

I am not an absolutist with respect to equality of opportunity. I do want proper monotonic improvement in this regard. My generation in Canada has failed that test.

[Nathanael]

The experimental research shows that the situation is more complicated than this one experiment: we already know that each society has a *standard* for fairness, for appropriate distribution, and that the percentage varies among societies; in some African societies, you are very much expected to give 70%, in America that is considered "too much".

The graph would have the same shape, but the peak would probably be at 70% in those African societies.

[Nathanael]

With experimental economics, as with all else, it helps to look at the past literature. Which you may not have done.

The ultimatum game is good for identifying cultural fairness standards.