The Economics of Red Nose Day

With Brexit looming large in Britain and America facing a turbulent future, we could all do with some Comic Relief. It’s hoped that the 2017 Red Nose Day will emulate and perhaps surpass the success of last year’s, which raised a staggering £72,505,165 for charitable causes. Thus, we are once again being asked to part with our hard-earned cash to aid the plight of some of the estimated three billion people who live on under $2.50 a day.  However, this raises the question: why do we donate to charity when we receive no tangible good or recognisable service in return? Charitable donations run paradoxically to homo economicus – the idea that humans act rationally in order to best further their own interests – one might ask how charitable events such as Red Nose Day attract such vast sums in donations.

Bestselling author and behavioural economist Daniel Kahneman theorised that whilst we do redistribute our wealth out of a genuine desire to help, the presence of altruism and goodwill alone cannot account for the total amount of charitable donations. This view has been built on and adapted to create a theory that many will have deduced already: some people give to charity for the enjoyment they experience when they share the news of their generosity; others give because they feel obliged to. Everyone must give on special occasions such as Red Nose Day because everyone else does, or so this theory would suggest.

This paradoxical phenomenon leads to two ulterior motives for helping those worse off than us. Firstly, through a desire to fit in, we feel a positive glow when we actively engage in a group exercise, thus strengthening our sense of self within society. Secondly, we do it to avoid the shame of not donating when such a relatively small cost to ourselves could make a large positive difference to the recipient. This warm glow can be attributed to a sense of rebalancing the unfairness of the world that we live in. Therefore, it is difficult to split those who donate to charity because they have the ability to incorporate the welfare of others into their own happiness with those who do it for selfish reasons. Indeed, some argue that this split does not matter – it’s likely that the action of giving is motivated by a multitude of factors.

While these two rationales for donating seem like complete opposites, they are in fact two sides of the same coin. This coin is cleverly exploited by the organisers of charitable fundraisers to extract as much money out of the public as possible. The annual redistribution of wealth from the relatively rich to the absurdly poor is achieved by making you feel good about donating, by praising contributions both large and small, from “normal” people. A study conducted in The Netherlands showed that during church services, using an open basket when passing round a donation bag could lead to an increase in contributions of up to 10%. By seeing how much our neighbours are giving, we follow suit, eager to conform to the societal norm and receive our very own warm glow feeling.

So how do charities use this information during drives for cash? Both our shame and pride are targeted – the former through evocative videos of the harsh conditions felt by those less fortunate, the latter by the exuberant celebration of every little contribution made by the public. As suggested by a recent study, a suggested donation amount not only increases the chance of a reply from an individual, but also raises the probability of the donation taking that very same value. Too much and we cannot justify it, too little and it will not make the desired impact for the charities. A token gesture of three or five pounds tends to be the optimal strategy since it’s easily rationalised by comparing the cost to a morning cup of coffee.

Despite these arguments that we either give to make ourselves feel better, or to avoid the uncomfortable label of “Scrooge” by friends and colleagues, it is worth noting that whatever the reason for giving, it will go to a good cause. In 1771, David Hume stated that giving for selfish reasons is “inseparable from all the other social virtues, humanity, generosity, charity, affability, levity, mercy and moderation.” So whatever your reason for giving this Red Nose Day, and despite strategists working to increase your maximum probable donation, it is of course possible to give from the heart – and remember to dig deep.


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