Economics,  Altruists,  and  Giving  

Bill  Harbaugh    Economics,  University  of  

Oregon    

joint  work  with    Ulrich  Mayr,  UO  Psychology  

 

My compassion history:

•  Facial recognition skills: not so good.

•  Worse, I’m an economist. Economists like clean, simple models.

•  Compassion is messy, complicated.

•  So, I am only studying compassion because it is necessary.

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Simple  economics:  •  The  basic  insight  of  economics  is  that  we  can  harness  

self-­‐interest  to  make  a  beHer  world  for  everyone.  

•  We  set  up  the  market  rules  so  that  people  can  sell  what  they  can  produce  to  others  who  value  it.  

•  And  they  can  keep  part  of  that  value  for  themselves.  

•  This  works  because  market  prices  provide  both  incenKves  and  informaKon  to  both  the  sellers  and  the  buyers.    

 

But:  

•  Costs  someKmes  spill  over  and  harm  others:  ExternaliKes,  such  as  polluKon.  

•  Some  important  things  can’t  be  produced  without  benefiKng  even  people  who  don’t  pay  the  costs:  public  goods.    

•  So  prices  fail  to  provide  informaKon  and  incenKves.  

             A  example  of  a  public  good:  

•  Most  people  care  about  the  poor.  

•  But  their  well-­‐being  is  a  public  good  –  so  it’s  underprovided.  

•  What  to  do  about  this?  

•  Charity  or  taxes.  

Charitable  giving  and  taxes:  

Giving:  68%  of  US  families  give  something  2.2  %  of  their  income,  on  average      0.8%  in  UK  0.3  %  in  Germany  0.1  %  in  France  

 Taxes:  35%  in  US,  50%  in  Europe.  

Giving  varies  

With  income:    <  $    10,000,  give  5  %  of  income    ~  $    45,000,  give  1  %    >  $100,000,  give  3  %  

 With  age:      ~  30,  give  2  %    ~  65,  give  4  %  

 Increases  with  educaKon  

Why might rational people give?

•  Pure altruism: U = U(x, G) –  x is the amount of your private consumption, G is

the amount of the public good –  So, give to increase the level of the good. –  Predicts crowding out, free-riding, zero giving by

most people.

•  Warm glow: U = U(x, g) –  g is amount you give towards the public good –  Works empirically, but ad hoc

•  (Which motive is more altruistic?) 8

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Neuro-­‐economic  experiment:  

Study  what  people  do,  not  at  what  they  say.    ParKcipants  start  with  $100:  

•  Transfers  of  money  from  the  subject  to  a  local  food  bank    •  SomeKmes  mandatory  –  like  taxes      

•  SomeKmes  voluntary  –  like  charitable  giving    We  vary  the  price  of  giving:    •  SomeKmes  $15  turns  into  $45  •  SomeKmes  $45  turns  into  $15  

Demand  for  giving  slopes  down  

How often people give

Cost to the giver of giving away $1

Giving  is  raKonal  

•  People  balance  the  cost  to  themselves  and  the  benefit  to  others.  

•  But  why  do  they  care  about  the  benefit  to  others?  

•  Instead  of  asking  them,  we  tax  them,  give  the  money  to  charity  –  no  choices.  

•  And  we  image  brains  while  we  do  this.  

•  Compare  neural  acKvaKon  when  they  get  money  with  acKvaKon  when  money  goes  to  public  good.  

 

Neural  effects  of  taxaKon  “Reward circuitry” activation:

Yellow: $ to Self Blue: $ to Charity Green: Overlap

Mandatory taxation to pay for a public good activates the same neural “reward circuitry” as does $ to the self

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And degree of activation predicts giving

R2 = 27%, p=0.02 “Altruists” give nearly twice as often as egoists

Egoists: highrr activation from own

gains

Altruists: higher activation

from charity gains

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Economics: Marginal Rate of Substitution

x

G

. accept

reject .

altruistic:

x

G

accept .

. reject

egoistic :

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Activation is higher for a voluntary gift than for a tax

Also find evidence for warm glow:

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Conclusions:

•  Getting money, pure altruism from seeing the charity get money, and warm glow all activate similar reward areas in the VTS.

•  People “prefer” to pay for a public good with voluntary giving, rather than mandatory taxation - and this is only in part because if it’s voluntary, they don’t have to give.

•  MRS, measured as % increases in BOLD response in reward areas, predicts who will give. This supports pure altruism.

•  Extra activation in the Voluntary treatments, controlling for payoffs, supports warm glow motive.

Is it better to give than to receive?

Good models of charitable giving must incorporate something about the effects of gifts on recipients.

In some ways receiving charity is the mirror image of

giving: Money is a cost to the giver and a benefit to the receiver. People give despite the cost, because they get other

benefits – pure altruism, warm glow, prestige – that exceed the cost.

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So, if the giver’s cost is a benefit to the recipient, are the giver’s benefits costs to the recipient? •  warm glow of giving / shame of needing help?

•  prestige benefit of public giving / public stigma of public receiving?

Our neural evidence on giving corroborates economic

models – models that came from observable choice data.

But with receiving, often there is no choice data. So this

is an area where neuro-economics may make a unique contribution. 18

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•  Sample of undergraduates already receiving financial aid. –  N=20, mixed genders. –  Recruited because they are moderately high need

and moderately high academic merit. Screened with FAFSA and transcript.

–  GPA between 3 and 3.8., eligible for some, but not max Perkins grant.

–  Told that they may be given need or merit based scholarships ranging from $50 to $150.

–  Done in an fMRI scanner

Subjects and Design

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Each subject has 96 trials: •  60 mandatory •  36 voluntary, where they can decline assistance •  One of each type counts for payoff •  Could receive as much as $300 plus showup

“Your scholarship reduces the amount available for other eligible students.”

•  But amount of that reduction varies from $50 to $150

•  Salient and ecologically valid payoffs.

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Main Cue •  Amount of scholarship,

cost to others.

•  Choice or No choice

•  Choice or acknowledge buttons appear after 10s

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Neural Results

Preliminary, 18 subjects analyzed with FSL. GLM includes EV’s for

Mandatory, Voluntary In voluntary, Accept / Reject are separated. Parametric measure of efficiency:

scholarship amount - cost to others

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Deciding: Voluntary vs Mandatory

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Controlling for amount of money, cost to others, qualification test: More activation in affective and evaluative areas.

Activation while deciding (Voluntary):

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Nucleus Accumbens Anterior Insula (Left)

Accepted aid Declined aid

Efficiency of the aid: (Scholarship – Cost)

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NACC and PFC activation when Scholarship > Cost

Same in the mandatory case – where there’s no decision.

What about the “qualified” distinction?

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Again, NAcc and PFC activations are higher when you are qualified for the aid.

Conclusions:

Giving is voluntary, so charity must be good for people who choose to give.

Marginal effects work too - they give more when it’s

efficient, more when it’s public. But every act of charity has a recipient as well as a giver.

Receiving aid is not always voluntary. So we can’t always use the rational choice / revealed

preference argument to say that the receiving side of charity is always utility maximizing. We need neuroeconomics.

Giving people a chance to accept or reject aid activates affective and evaluative areas, as in charitable giving decisions.

We find different neural reactions to accepting and to

rejecting charity:

–  reward area activation precedes transfers that are accepted –  insula activation precedes transfers that are rejected

And we find higher activation in dopaminergic reward related areas when costs to others are lower and when the recipient is qualified for the aid.

Implications: There are costs to receiving aid. Sometimes those

costs exceed the value of the money. Sometimes it is better to give than to receive.

Costs of receiving can be varied by telling people

that the aid they will receive is costing other people a lot – particularly other people who are more needy than they are.

We can reduce those costs: Maimonides,

Homeless News, Liberation Theology.

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