Why Do People Give? An Experimental Test ofPure and Impure Altruism

Lise Vesterlund ∗

Mark Ottoni-Wilhelm †

Huan Xie ‡

∗University of Pittsburgh

†IUPUI and IU Lilly Family School of Philanthropy

‡Concordia University

Workshop in Multidisciplinary Philanthropic StudiesMarch 13, 2014

Overview

• Standard economic model of charitable giving is impurealtruism.

• Dual-motive theory: altruism and egoism/warm glow• Cornes & Sandler (1984), Steinberg (1987), Andreoni (1989)• Batson, Darley, & Coke (1978): “Motivation for helping may

be a mixture of altruistic and egoistic desires.”

• Lots of work over the past 25 years has been built on thismodel.• Andreoni (2006), Vesterlund (2010)• Twenty-five Years of Impure Altruism, UCSD

Overview

• However, there has not been a test of a prediction of theimpure altruism model that was not purposefully built into themodel to begin with.

• Nor a test that, for all practical purposes, the model could fail.

• In this paper we conduct a charitable giving experiment thattests a prediction not purposefully built into the model.• Results consistent with impure altruism – the model passes the

test, but ...• ... egoism/warm glow motives among the participants were

weak.• Most of the giving in the experiment was due to altruism.

Overview

• Innovations• New test that is closely integrated with theory.• New experimental design that carefully creates the theoretical

framework inside the lab.• Measure individual heterogeneity in altruism and egoism/warm

glow.

• Significance• Fundamental question about human behavior – existence of

altruism• The strong altruistic motivation we see in the experiment

differs from previous experimental results that have suggestedegoism/warm glow to be the predominant motive people give.

Theory - a giving situation

• You are each paired with a different child (between 1 and 12years old).

• The child’s family home has been destroyed by fire.

• You will be given money which you can allocate between thechild and yourself.

• The money you allocate to the child will be given to the RedCross.

• The Red Cross will use the money to buy books for the child,and will give the books to the child immediately after a fire.

Theory - a giving situation

• The Red Cross provides the family with temporary shelter,clothing, a meal, a ”comfort bag.”

• The Red Cross has no funds for any comfort items for thechildren.

• In addition to the amount of your money you allocate for thechild’s books, a foundation has agreed to donate a fixedamount of money towards the child.

• The foundation’s fixed donation is independent of yourallocation.

• Hence, the total amount the Red Cross will be able to spendon books for the the child is the foundation’s fixed donationplus the allocation you make to the child.

Theory - a giving situation

• Why use the funds to buy books?• The books provide a great bridge for Red Cross volunteers to

connect with kids and get them talking about what they’veexperienced.

Theory - a giving situation

• What will you decide to do?• The foundation will donate $4 towards the child.• You have $46 to allocate between the child and you.

• How much will you allocate to the child?

• Deciding . . .

Experiment

0.1

.2.3

.4F

ract

ion

0 10 20 30 40 46Dollars allocated to the child

Source: Vesterlund, Ottoni-Wilhelm, Xie (2014).

Figure 1. Foundation = $4, Your income = $46.

Reflection

Think for a moment: Why did you pick the amount you allocatedto the child?

What motivated you?

Theory - Why did you pick the amount you allocated tothe child?

• Egoism/warm glow motivations – intensive focus on . . .• + . . . seek positive self-evaluation of identity (moral principles)

• – . . . avoid self-punishment for not helping (guilt)

• + . . . seek approbation (extrinsic)

• – . . . avoid shame (extrinsic)

• 3 more intrinsic:• personal distress - alleviate the distress you feel hearing about

the child and the fire.• seek “empathic joy”• seek relief of negative mood state.

Theory - Why did you pick the amount you allocated tothe child?

• Altruistic motivations – intensive focus on the amount ofbooks needed to accomplish the goal.• What amount of books are needed to allow the volunteers to ...

• ... connect with the child and get her/him talking about whatthey’ve experienced?

• ... initiate a process through which the child will begin torecover a sense of well-being?

Theory - a DIFFERENT giving situation

• What will you decide to do?• The foundation will donate $10 towards the child.• You have $40 to allocate between the child and you.

• How much will you allocate to the child?

• Deciding . . .

Experiment: situations 1 and 2

0.1

.2.3

.4F

ract

ion

0 10 20 30 40 46Dollars allocated to a child

Fdtn = $10, You = $40 Fdtn = $4, You = $46

Source: Vesterlund, Ottoni-Wilhelm, Xie (2014).

Figure 3. Two decisions.

Reflection again

Did you change the amount you allocated to the child?

Why?

Theory - Pure Altruism

• If your goal was to get $15 to the Red Cross because that isenough books to help the volunteers connect with the child,then the two budgets you were just faced with—($4, $46) and($10, $40)—are equivalent.• Faced with ( $4, $46), you give $11 (books = $4 + your $11).• Faced with ($10, $40), you give $5 (books = $10 + your $5).

• The total amount of money in play was the same($50)...“balanced-budget.”

• When the foundation went from $4 → $10 (+ $6), you wentfrom $11 → $5 (− $6).• Crowd-out (balanced-budget) = −$6

+$6 = −1

Theory - Pure Altruism - Income effect

• What if we held the foundation’s donation fixed at $4 andincrease your income from $40 to $46?• Faced with ( $4, $40), say you give $9 (books = $4 + your $9

= $13).• Faced with ( $4, $46), you give $11 as before (books = $4 +

your $11 = $15).

• Income effect = $15−$13$46−$40 = +$2

+$6 = +.33 (from perspective ofbooks)

• Income effect = $11−$9$46−$40 = +$2

+$6 = +.33 (from perspective ofyour contribution)

Theory - Pure Altruism - Unfunded crowd-out

• What if when the foundation’s donation went up from $4 →$10 we held your income fixed at $40? (the foundation’s increase is not

funded from your income...“unfunded”)

• Faced with ( $4, $40), you give $9 as before (books = $4 +your $9 = $13).

• Faced with ($10, $40), you give $5 as before (books = $10 +your $5 = $15).

• The total amount of money in play has gone up from $44 →$50.

• When the foundation went from $4 → $10 (+ $6), you wentfrom $9 → $5 (− $4).• Income effect = $15−$13

$50−$44 = +$2+$6 = +.33 (from perspective of

books)• Crowd-out (unfunded) = $5−$9

$10−$4 = −$4+$6 = −.67 (from

perspective of your contribution)• Crowd-out (unfunded) = −1 + Income effect = −1 + .33

Theory - Pure Altruism - In-kind transfers

• Standard intermediate microeconomics course – food stampsexample.• Balanced-budget

• Person gets $4 per week in food stamps and has $46 in cashincome, say they spend %15 week on food ($4 food stamps +$11 cash) and $35 on other goods (cash).

• If $10 per week in food stamps and has $40 in cash income,would still spend %15 week on food ($10 food stamps + $5cash) and $35 on other goods (cash).

• Unfunded• Person gets $4 per week in food stamps and has $40 in cash

income, they spend $13 on food ($4 food stamps + $9) and$31 on other goods.

• If $10 per week in food stamps and $40 in cash income, wouldspend %15 week on food ($10 food stamps + $5 cash) and$35 on other goods (cash).

• Some of the $6 increase in food stamps was spent on food(.33 – the income effect on food) and the rest was spend onother goods (.67 – the income effect on other goods).

Theory - Pure Altruism

• Increasing cash income and increasing amount of in-kind(food stamps, books–charity) is the same.

• Income effect on books–charity is called q1• In the previous example q1 = .33

Theory - EGOISM/Warm Glow - Unfunded crowd-out

• If you said “You know what, what happened to that kid isterrible, and it’s my duty to help out. I’ll give $20 out of my$40) income.”• Faced with ( $4, $40), you give $20 as before (books = $4 +

your $20 = $24).• Faced with ($10, $40)—“still my duty to give $20”—(books =

$10 + $20 = $30).

• The total amount of money in play has gone up from $44 →$50.

• When the foundation went from $4 → $10 (+ $6), youremained at $20.• Income effect = $30−$24

$50−$44 = +$6+$6 = +1.00 (from perspective of

books)• Crowd-out (unfunded) = $20−$20

$10−$4 = $0+$6 = 0.00 (from

perspective of your contribution)• Crowd-out (unfunded) = −1 + (Income effect = +1) = 0.00

Theory - Egoism/Warm Glow - Income effects (plural)

• You mean to tell me that if that person’s own income wentfrom $40 → $46 they would give ALL of it to buy morebooks?• Not likely. Say they would give an additional $3.60• Her/his q1 = $3.60

$6 = .60

• Then when the foundation increases its donation of booksfrom $4 → $10, it is as if the person has a second, “extra”income effect = .40 so that she/he spends all the $6additional income on books, and none of it on other goods.

• This second “extra” income effect is called q2.

• q2 is evoked only by the foundation’s $6 increase in donation.

• Pure Egoism/Warm glow ⇔ q1 + q2 = 1, and of courseq2 > 0.

Theory - Impure Altruism

• In between the two extremes of Pure Altruism and Pure WarmGlow.

• Income effects• Pure altruism : q2 = 0• Impure altruism: q1 + q2 < 1, and q2 > 0• Pure Warm Glow : q1 + q2 = 1, and q2 > 0

• Crowd-out (balanced-budget / unfunded)• Pure altruism : 0 , and −1 + q1• Impure altruism: −1 + q2, and −1 + q1 + q2• Pure Warm Glow : −1 + q2, and 0

Background

• Pure altruism came first, in economic work

• Edgeworth (1881), Boulding (1962), Hochman & Rodgers(1969), Becker (1974).

• No one even thinking about Pure Warm Glow• “Utility theory will mislead us if we conclude from it that the

motivation for philanthropy is no different from that for otherforms of expenditure” (Boulding 1962).

• Pure altruism theory crashes into real world evidence• Econometric studies of unfunded crowd-out (κ) between -.05

and -.35 (Steinberg 1991, Andreoni 2006, Vesterlund 2010).• Even if κ = -.35, q1 would have to be +.65 !!!

Background

• Impure altruism = altruism + warm glow• Cornes & Sandler (1984), Steinberg (1987), Andreoni (1989)• “Motivation for helping may be a mixture of altruistic and

egoistic desires; it need not be solely or even primarily altruisticto have an altruistic component” (Batson, Darley, & Coke1978).

• Although there likely are other sources of utility from giving:seek approbation, avoid shame, positive self-evaluation (duty),etc...

• ...“fairly obvious that neutrality will be unlikely to hold withwarm-glow giving” and will produce a model “consistent withempirical observations” (Andreoni 1989).

• In economics, warm glow was added to the Pure Altruismmodel to fix the crowd-out prediction so that it aligned withthe econometric evidence.

Experiments

• Previous work has tested a Pure Altruism null hypothesis• Bolton & Katok (1998) DG-student: |κBal | = .74 (q2 = .26)–

moderate warm glow• Eckel, Grossman, & Johnston (2005): DG-charity: |κBal | = 0

(q2 = 0) – Pure Warm Glow• Voluntary contribution mechanism experiments

• |κBal | from .975 (q2 ≈ 0) to .672 (q2 = .328)• Andreoni (1993), Chan, Godby, Mestelman, & Muller (2002),

Gronberg, Luccasen, Turocy, & Van Huyck (2012), Sutter &Weck-Hannemann (2004) – it depends

• Much recent work has emphasized the practical importance ofwarm glow• e.g., Eckel, Grossman, & Johnston (2005), Crumpler &

Grossman (2008), DellaVigna, List, & Malmendier (2009),Tonin & Vlassopoulos (2010, 2013)

Predictions

• A balanced-budget crowd-out test can serve as a test of purealtruism — H0 : κBalA = −1⇔ q2 = 0.

• A balanced-budget crowd-out test cannot serve as a test ofimpure altruism — H0 : |κBalIm | < 1⇔ q2 > 0• Pure warm glow is also consistent with q2 > 0.• Practically, even if the true model is pure altruism, any

confidence interval around κ̂Im ≈ −1 will be consistent withsome q2 > 0, however small.

• More fundamentally, the second income effect q2 > 0 wasintentionally built in to yield |κBalIm | < 1 in the first place.

• An unfunded crowd-out test can serve as a test of pure warmglow — H0 : κGlow = 0⇔ q1 + q2 = 1.

Limits to impure altruism

• As Giving by others (e.g., the foundation)→∞⇒ q1 + q2 → 1⇔ κ→ 0.• Under fairly weak conditions on preferences.• Ribar & Wilhelm (2002).

• New test:• Increase Giving by others (e.g., the foundation) from a low

level to a high level and test H0 : |κGLow−i| ≥ |κGHigh

−i|.

• This prediction was not intentionally built into the impurealtruism model.

Limits to impure altruism: Cobb-Douglas illustration

a = .40b = .10

q1 + q2

|k|

0.2

.4.6

.81

q 1 +

q2,

| k|

0 20 40 60 80 100Giving by others (G-i)

q1 + q2 Crowd-out

Notes: The Cobb-Douglas parameters are a = .40 and b = .10. U = a log(G) + b log(gi) + (1 - a - b) log(xi). Income is held constant at wi = $40.

Figure 4A. Cobb-Douglas q1 + q2 as giving by others(G-i) increases.

New test

• Increase giving by others from a low level to a high level andtest H0 : |κGLow

−i| ≥ |κ

GHigh−i|.

• Intuition• When giving by others is Low, motivated by need to provide

the charitable good (books): q1 > 0 and q2 ≈ 0.• As giving by others ↑, need for more books ↓ but warm glow

motivation ↑: q2 ↑• Eventually, when giving by others ↑ to a high enough level,

q2 ↑ enough so that q1 + q2 ≈ 1⇔ κ ≈ 0.• Any giving still being done is motivated by warm glow (at the

margin).

• This prediction was not intentionally built into the impurealtruism model.

New test - Experimental design

• Must hold need being addressed by the charity fixed as givingby others ↑.

• Careful control over giving by others, including giving byothers outside the experiment intended to address the sameneed.

• “Individualized charity” design.

Predictions - Five tests

Table: 1b. Five tests

Test Model being tested H0

1 Pure Altruism |κBal | ≥ 1

2 Pure Warm glow κ ≥ 0

3 Impure altruism - decreasing crowd-out |κGLow−i| ≥ |κ

GHigh−i|

4 Impure altruism - increasing q2 qLow2 ≤ qHigh2

5 Impure altruism - at GHigh−i qHigh2 > 0 and

qHigh1 + qHigh2 < 1

Individualized charity

• Created a new public good through collaboration with theAmerican Red Cross in Southwestern Pennsylvania.

• In the event of a fire in SW PA, the Red Cross helps theaffected families find temporary shelter, provides them withclothing, a meal, and gives them essential toiletries.

• Prior to study no items given to the children affected by thefire.

• Each participant in the experiment is paired with a differentchild whose family home has suffered extensive fire damage,and ...

• ... can give some money to the Red Cross to use to buy booksfor the child.

• The books provide a bridge for Red Cross volunteers toconnect with the child.

• Neither the Red Cross, nor other donors, provide”bridge-books” for this child.

Instructions 1

• You will be asked to make six decisions.

• One of your six decisions will be randomly selected forpayment.

• Your payment will result from your decision, plus $5 forshowing up to the study.

• A research foundation provided the funds.

Instructions 2

• You are paired with a child (between 1 and 12 years old).

• The child’s family home has been destroyed by fire.

• In each of your six decisions you will be given money whichyou can allocate between the child and yourself.

• The money you allocate to the child will be given to the RedCross.

• The Red Cross will use the money to buy books for the child,and will give the books to the child immediately after a fire.

Instructions 3

• The Red Cross provides the family with temporary shelter,clothing, a meal, a ”comfort bag.”

• Unfortunately, the Red Cross has no funds for any comfortitems for the children.

• We have joined the Red Cross to collect funds to buy booksfor the affected children.

• In each of your six decisions you will be given money whichyou can allocate between the child you are paired with andyourself.

Instructions 4

• In addition the foundation has agreed to donate a fixedamount of money towards the child, independent of yourallocation.

• The total amount to be spent on the child is the sum of thefoundation’s fixed donation and the allocation you make tothe child.

• The amount of money that you can allocate between the childand you, as well as the foundation’s fixed donation to thechild, will vary across the six decisions.

Instructions 5

• If you choose not to allocate any funds to the child, then themoney to be spent on the child will be limited to the researchfoundation’s fixed donation.

• Only you have the opportunity to allocate additional funds tothe child.

• Neither the Red Cross nor any other donors provide books tothe child.

Instructions 6 — Why use the funds to buy books?

Children’s needs are often overlooked in the immediate aftermathof a disaster because everyone is concerned primarily with puttingthe fire out, reaching safety, and finding shelter, food andclothing...just the basics of life. So many times, I’ve seen childrenjust sitting on the curb with no one to talk to about what’shappening... for this reason I’ve found trauma recovery experts inthe community to work with us to train our volunteer responders inhow to address children’s needs at the scene of a disaster.......being able to give the children fun and distracting books willprovide a great bridge for our volunteers to connect with kids andget them talking about what they’ve experienced.

Decisions 1-6 as seen by a participant

Test 1: Pure altruism

H0 : κBalA = −1⇔ q2 = 0

p = .255

p = .002

0.2

.4.6

.81

1.2

Cro

wd-

out (

Bal

ance

d-bu

dget

)

Low $4-10 High $28-34Notes: Vesterlund, Ottoni-Wilhelm, & Xie (2014) Table 2, columns 1 and 2. Tests are for complete crowd-out. Estimates not adjusted for corner decisions.

At low and high giving by othersTable 2. Balanced-budget crowd out:

Result: Pure altruism not rejected at GLow−i , but is rejected at

GHigh−i .

Test 2: Pure warm glow

H0 : κ ≥ 0

p < .001

p < .001

0.2

.4.6

.81

Cro

wd-

out (

Unf

unde

d)

Low $4-10 High $28-34 ChangeNotes: Vesterlund, Ottoni-Wilhelm, & Xie (2014) Table 4, columns 1--3. Tests are for zero crowd-out (bars 1 and 2), and for zero change in crowd-out (bar 3). Estimates not adjusted for corner decisions.

From a low to a high level of giving by othersTable 4a. Change in unfunded crowd out:

Result: Pure warm glow is rejected.

Test 3: Impure altruism

H0 : |κGLow−i| ≥ |κ

GHigh−i|

p < .001

p < .001

p = .013

0.2

.4.6

.81

Cro

wd-

out (

Unf

unde

d)

Low $4-10 High $28-34 ChangeNotes: Vesterlund, Ottoni-Wilhelm, & Xie (2014) Table 4, columns 1--3. Tests are for zero crowd-out (bars 1 and 2), and for zero change in crowd-out (bar 3). Estimates not adjusted for corner decisions.

From a low to a high level of giving by othersTable 4b. Change in unfunded crowd out:

Result: H0 : Crowd-out stayed the same (or got bigger) is rejected⇒ Results consistent with Impure Altruism.

Test 4: Impure altruism - intuition

H0 : qLow2 ≤ qHigh2

1

Table 5. Additional evidence supporting the impure altruism model. Account for corner decisions Change in

unfunded crowd-out

(restricted sample)a

Change in balanced-budget

crowd-out (full sample)

Unfunded crowd-out and own income effect

Giving by others Low/

High (1)

Low/ High (2)

High

(3) Giving by others (G-i) -0.53 -0.99 -0.41 d (0.07) (0.09) (0.07) Giving by others interacted 0.12 b 0.18 c ‒ with a dummy indicator that giving by others is high

(0.08) (0.12)

Income (wi) ‒ ‒ 0.40 d (0.07) Budgets

1, 2, 3, 4

2, 5, 4, 6

3, 4, 6

n 70 85 85

Result: Intuition not rejected.

Test 5: Impure altruism - at a high level of giving by others

H0 : q2 > 0 and q1 + q2 < 1

1

Table 5. Additional evidence supporting the impure altruism model. Account for corner decisions Change in

unfunded crowd-out

(restricted sample)a

Change in balanced-budget

crowd-out (full sample)

Unfunded crowd-out and own income effect

Giving by others Low/

High (1)

Low/ High (2)

High

(3) Giving by others (G-i) -0.53 -0.99 -0.41 d (0.07) (0.09) (0.07) Giving by others interacted 0.12 b 0.18 c ‒ with a dummy indicator that giving by others is high

(0.08) (0.12)

Income (wi) ‒ ‒ 0.40 d (0.07) Budgets

1, 2, 3, 4

2, 5, 4, 6

3, 4, 6

n 70 85 85

Result: Impure altruism not rejected.

Structural model

Ui = αlog(G ) + βlog(gi ) + (1− α− β)log(xi )

Table: Cobb-Douglas

All Except always at a corner(N = 85) (N = 78)

Altruism (α) .594 .569(.025) (.025)

Warm glow (β) .021 .026(.009) (.009)

ρ .902 .829(within-person corr.) (.016) (.025)

Notes: Non-linear random effects Tobit.

Crowd-out in the representative model

a = .594b = .021

q1 + q2

|k|

0.2

.4.6

.81

q 1 +

q2,

|k|

0 20 40 60 80 100Giving by others (G-i)

q1 + q2 Crowd-out

Notes: The Cobb-Douglas parameters are a = .594 and b = .021. U = a log(G) + b log(gi) + (1 - a - b) log(xi). Income is held constant at wi = $40. These are the a, it:b} estimates from the representative Cobb-Douglas unility function. (N = 85).

Figure 9. Cobb-Douglas q1 + q2 as giving by others(G-i) increases.

Counterfactual: if there had been no altruism

• α = 0 and β = .021

• 95 % of the giving would be gone.

Individual heterogeneity in altruism and warm glow

Ui = αi log(G ) + βi log(gi ) + (1− αi − βi )log(xi )

0.2

.4.6

.81

Altr

uism

(a )

0 .2 .4 .6 .8 1Warm glow (b)

Notes: Points on the y-axis are pure altruism participants. Points on the x-axis are pure warm glow participants. n = 78.

Figure 8: Cobb-Douglas Altruismand Warm Glow Parameters

Individual heterogeneity in altruism and warm glow

Ui = αi log(G ) + βi log(gi ) + (1− αi − βi )log(xi )

0.2

.4.6

.81

Altr

uism

(a)

0 .2 .4 .6 .8 1Warm glow (b)

Women Men

Notes: Points on the y-axis are pure altruism participants. Points on the x-axis are pure warm glow participants. n = 78.

Figure 8b: Altruism and Warm Glow:Women and Men

Conclusion - Significance

• First test of a prediction of the impure altruism model, notdesigned into the model from the beginning.

• Strength of warm glow detected in an experiment is sensitiveto the level of exogenous provision of the public good atwhich crowd-out is being measured, and ...

• ... other characteristics of the context, such as the purpose ofthe non-profit organization to which participants can give.• In the experimental context we established, participant motives

differ from previous experimental results that have suggestedwarm glow to be the predominant motive people give tocharity.

Conclusion - Significance

• Practical implications• How fundraising communication takes into consideration ”Why

might potential donors give?”• How donors reflect on the question ”Why do I give?”

• Evidence for the existence of altruism in charitable giving.

Thank you

• Kong Wah Lai, Michael Menietti, and Linnea Warren whohelped conduct the experiments.

• Sandi Wraith and the American Red Cross of South WesternPennsylvania.

• IU Lilly Family School of Philanthropy Research Fund Grant54-921-10.

What is q2 ?

• Mechanical answer: Impure altruism places no restrictions onthe size of q2.• q2 is what it needs to be in order to generate a prediction that

is consistent with the available crowd-out evidence:• κ̂Im = − .05, if q1 = .02, would be rationalized by q2 = .93

• a “cosmological constant” for charity

• Economics answer: q2 is a difference between two incomeeffects:• dG∗

dG−i− dG∗

dwi= [q1 + q2]− q1

• dx∗i

dwi− dx∗

i

dG−i= [1− q1]− [1− (q1 + q2)]

• Psychological answer: q2 arises because there are 7 specifictypes of warm glow/egoism, none of which are satisfied whenG−i ↑:• 2 extrinsic: avoid shame, seek approbation.• 5 intrinsic: avoid guilt, seek positive self-evaluation of identity,

seek “empathic joy,” seek relief of negative mood state, reducepersonal distress.

What is q2 ?

• Pop culture answer . . .

If this is q1 . . .

. . . then this is q2

. . . warm glow indeed!