Panel Paper: Financial Incentives and Fundraising: When Paying Undermines the Pitch

Friday, November 4, 2016 : 10:55 AM
Morgan (Washington Hilton)

*Names in bold indicate Presenter

Alixandra Barasch, New York University, Deborah Small, University of Pennsylvania and Jonathan Berman, London Business School

Incentives sometimes have perverse effects. For activities that provide their own inherent reward, an external motivator can displace intrinsic motivation and reduce effort in those activities. Such effects are prevalent in prosocial behavior, where external incentives have been shown to backfire, or “crowd out” a wide range of actions, from blood donations to volunteer efforts to environmentally-friendly behavior.

 Incentives are typically thought to affect behavior through the channel of motivation.  Therefore, past investigations of crowding out have examined effort, persistence, and monetary contributions allocated toward helping others. However, sometimes “doing good” requires more than just effort. Fundraising, in particular, requires communicating persuasively.

 This paper presents findings from two randomized trials testing the effects of incentives on prosocial behaviors, specifically in the realm of charitable giving. Study 1 compared incentivized and non-incentivized persuaders. Students were recruited from community service groups to make a video pitch for a charity of their choice. Students were randomly assigned to one of two groups. In both conditions, persuaders read instructions explaining that someone would subsequently view their video and have a chance to donate to their organization. In the Incentive condition, persuaders also read: “As a bonus, for every $10 that the potential donor gives to your charity organization, we will send you a $1 reward.” In the No Incentive condition, this statement was omitted.

 Then, a separate online sample of 465 target donors watched one recorded charity appeal (5 donors per video). After watching, target donors read that they would receive additional money (on top of their payment for participating in the study), which they could keep or donate any portion to the cause in the video. Target donors also rated the persuader who made the appeal on a multi-item perceived sincerity scale. 

 Findings revealed that participants donated less money when the persuader received an incentive for soliciting donations than when the persuader did not receive an incentive, even though target donors were unaware of the incentive. Similar analyses revealed significant effects on perceived sincerity. Incentives decreased the perception that the persuader sincerely cared about a cause, which in turn decreased how much target donors gave to their cause.

 Study 2 involved a new set of volunteer persuaders who were randomly assigned to one of three conditions: a No Incentive group, or a Personal Incentive group that received a reward based on the amount of donations raised, and a Matching Incentive group that was told that the money they raised would be matched, and that the matching amount would be added to the money donated to their cause. Results were similar to those in the first test, but with the additional finding that the donations raised by the Matching Incentive group did not differ from those raised by the No Incentive group but did lead to greater donations than raised by the Personal Incentive group.

 In sum, incentives may affect individuals in ways not previously investigated: by crowding out their sincerity of expression and thus their ability to influence others’ support for a cause.