By Akhil Raj Gupta

Edited by Namitha Sadanand, Associate Editor, The Indian Economist

Overview

One of the key problems identified in the organization was a paucity of funds. Based on this, three aspects of charitable donations were identified, which are indicative of a general pattern in the behavior of members of the public that are willing to contribute funds. By manipulating/ tweaking these three aspects, a sustainable model to increase donations on a regular basis, can be built. This can prove to be advantageous to the organization for the following reasons –

  • Increased ability to pay Fellows such that the Program becomes a viable alternative to regular employment and not just a brief occupation.
  • Increased administrative efficiency
  • Increased outreach of the program – enrolling more students, working with more schools in new cities, expanding financing across the entire educational span of a student i.e. up till graduation and even beyond.

 Modeling the behavior of donors

 Before understanding how to increase donations for TFI, it is important to interpret the decision making process followed by an individual looking to make a donation for a good cause. If there are any deficiencies or obstructions within this process that can be and are removed, the probability of receiving more donations stands to be much higher than that in status quo. Under the current system of donation, contributors face three key constraints-

  • Contributors who can afford to give money but not time, do not feel a sense of achievement and are hence reluctant to contribute
  • Contributors are unsure of an appropriate amount to donate
  • Contributors do not make repeat donations 

 Constraint #01

Contributors who can afford to give money but not time do not feel a sense of achievement and are hence reluctant to contribute

” One man’s death is a tragedy, a million men’s death is a statistic” – Joseph Stalin

” If I look at the masses, I will never act. If I look at the individual, I will” – Mother Teresa

As contributors to a noble cause, members of the public would expect some sort of reward. While this does may not amount to a tangible external reward such as fame or front-page acknowledgement, they would expect an internalized sense of fulfillment. While it is difficult to objectify such a mental process, famous behavioral economist Dan Ariely[1]speaks of an identifiable victim effect. He argues that as organizations asking for funds that do not bear any pecuniary return (unlike shares or debentures, etc.) we must appeal to the emotional facet of an individual rather than the cognitive facet. This can be achieved by displaying the plight of one uneducated child on all marketing communication sent out to potential donors rather than cumulative all-India statistics. Empirical studies have proved that statistical fact and rational calculations do not trigger empathy in individuals, as they do not activate the limbic system. The limbic system is the part of our brain that corresponds to emotions of sympathy, pity, and solidarity, which is the exact mindset that a potential contributor should be in.

Based on the above reasoning, the following formal model of accepting donations could be adopted: –

  1. Contributors shall be encouraged to donate for one or two specific children rather than the entire organization in general. This is a reversal of the previous pyramid model i.e. one contributor- many beneficiaries. Now, there can be many sponsors for even one beneficiary depending on the amount of funding required. They can even hand pick these students as per their individual preferences. For eg: – An engineer might wish to sponsor a student’s higher studies in the science stream. To ensure equity however, all students must be guaranteed a threshold allowance and these funds will be re-adjusted among students with high or low donations respectively. This process shall be referred to as the decentralization of funding.
  2. To trigger feelings of self-fulfillment, contributors shall be classified into the following categories
  • Dream- enabler – For donations that stand within one standard deviation of the mean amount.
  • Dream-fulfiller – For donations that stand within two standard deviations of the mean amount.
  • Dream- enhancer- for donations that stand within three standard deviations of the mean amount and higher.

           3.  Contributors would be alerted of their beneficiary’s progress by SMS on a fortnightly basis. They would also be invited to all Parent-Teacher meetings and shall be encouraged to interact with the Fellows for the specific needs of their beneficiary. For instance, if the child suffers from a viewing disability, sponsoring the necessary braille equipment for the child’s education would be the onus of the contributor.

                  4.   At the end of the academic year, the highest contributor for a specific district shall be designated as one of the Chief Guests for the school’s Annual Day function and felicitated on the TeachForIndia website. Alternatively, they can choose to remain anonymous if they so desire.

Constraint #02

Contributors are unsure of an appropriate amount to donate

The objective of any NGO is to maximize donationsby honest representation of facts. But contributors are often unsure of a base amount that they should donate because it is categorically difficult to estimate costs of intangible processes like education. Therefore, a simple tweaking of the guidelines based on a psychological concept called the anchoring effect,is proposed below.

This was researched extensively by Nobel Laureate (In Economics, 2002) Daniel Kahnemann who argues that human beings have a common tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth.[2]

Along the same lines, if TeachForIndia chooses to display (on its website or other material) the amount of donations as a real-time aggregate, it would be less effective than displaying the maximum amount donated by a single contributor that day.  Similarly the average is a less useful measure of representativeness because it is vulnerable to statistical manipulation due to outliers. This implies that if 4 individuals contribute Rs.100 and one individual contributes only Rs.1, the average drops sharply to Rs.80, which is an unfair representation of the nature of the distribution.

Contribution #03

Contributors do not make repeat donations

After building a model for donations, it is imperative that the ecosystem lends itself to stability and sustainability.  It must be accepted that contributions can represent an out-of-pocket expense for donors, especially if the campaign has mass appeal and includes a big chunk of middle class contributors. To facilitate such repeat payments, the following amendments could be made-

1. Changing the default

– In a novel study, Dan Ariely showed that organ donations in Belgium and France were 98% and 25% respectively. Since they are neighboring countries, no significant cultural or economic differences arise. The explanation for this anomaly can be sought in the distinction in the health insurance forms that the companies have.

For eg: – in France, the form states the following

TICK THE BOX IF YOU DO WISH TO DONATE AN ORGAN

In Belgium,

TICK THE BOX IF YOU DO NOT WISH TO DONATE AN ORGAN

The argument is simple. As individuals, we employ the path of least resistance to the default option. It does not indicate that people in France are less apathetic to the intensity of the problem of organ donation. It simply means that people are inconvenienced more by action than inaction. Applying the same procedure,the following formal payment system could be used-

– Contributors shall be encouraged to deposit a monthly cheque. This will entitle them to an account with education points. They can then choose to allocate these points to their beneficiaries. These points will be exchangeable for money by the concerned branch of the TFI office.

– Every month, contributors will be sent a reminder asking them whether they wish to continue contributing. However, the words shall be phrased as follows

PLEASE TICK THE BOX IF YOU DO NOT WISH TO CONTRIBUTE FOR EDUCATION

Once the reply is received, funds shall be automatically deducted from the account of the individual of the same amount as the previous month.

2. Decreasing the pain of paying

The system of exchanging money for points is one of few measures that shall contribute towards decreasing the pain of paying that the contributors feel. Human beings are inherently averse to the process of taking out money from our wallets. In line with this reasoning, if some measures can be taken to increase the distance between donations and physical money it can be very beneficial. This includes but is not limited to :-

1. Automatic renewal- to save contributors the hassle of transferring funds each time, money can be automatically debited from their account

2. Deferred accountability – Contributors shall by default be given an exact account of each rupee of their fund used on an annual basis rather than monthly or weekly reminders. They can adjust this option of course but the aim is to continuously distance the noble act of contribution from the physical act of paying money. Therefore, reminders must always be minimal.

3. Gift certificates – Contributors wishing to reward a student or Fellow as bonus remuneration will be encouraged to purchase gift certificates rather than cash. These certificates can be redeemable at an education-centric institution like a library or bookstore.

Summary

Through this analysis, I submit that the problem of donations might not be due to people’s apathy towards educational inequity but due to the lack of an appropriate framework to encourage these contributions.

These measures include ” putting a face to the problem” (solving constraint 1) i.e. rather than inspire donations through raw statistics; contributors should be encouraged to evaluate their decision to donate on a case-by-case basis. This is primarily to trigger emotional responses by them rather than cognitive assessments. Similarly, ” display the maximum donor” (solving constraint 2) shall provide a high anchor to maximize donations for TFI’s endeavors while retaining complete honesty. Selective information does not mean incomplete information as contributors will be able to access any donation-related information but the prima facie communication shall be hinged on the modal value. Last, “changing the default” is a novel way to facilitate repeat donations and improve sustainability of TFI’s fund-raising activities. These suggestions are effective and quickly implemented at almost no cost. They also do not require ANY significant alteration to TeachForIndia’s current business model and do not violate any statutory requirements.

The following is an excerpt from a case that the author solved for the Teach For India organization as part of an annual business plan competition, and received the first prize for. He hopes that the key points, though largely theoretical, make for some interesting reading.

Akhil is currently in his second year at college, pursuing a Bachelor of Arts degree in Economics (Hons) at Sri Ram College of Commerce, University of Delhi. He has been passionate about writing since an early age and is currently involved with the official College magazine and Economics Department magazine at SRCC. His areas of interest include behavioural economics / finance, econometric analysis, macroeconomic policy, and political theory. He spends his free time reading extensively, watching interesting videos on YouTube, and trying to convince everybody around him that he really does know a thing or two about economics in the midst of all the pontification!

 

 

 

 

 

 

[1]Ariely,Dan Predictably Irrational – New York Times Bestseller

[2] Daniel Kahnemann, ‘ Thinking, Fast and Slow’ 

Posted by The Indian Economist | For the Curious Mind