The Dictator Game and A Charitable Plan

Stephen Dubner, co-author of the best selling book, Freakonomics, spoke at the Tampa Theatre last week. During the talk, he described a common psychology experiment where college students are given $3 just for showing up to participate. Then they are given ten $1 bills and told that another student down the hall was also given $3 but not the $10. They tell the student they are free to share as much or as little of their $10 with the other student as they would like.

How much do you think the first students shared on average with the anonymous second student? Answer: $3.

Before giving us that answer, though, Dubner turned the question to the audience and asked, “If you were the first student, how much would you share? How many of you would share $10?”

Out of a couple hundred people, two hands went up.

“Well, there are always a couple of Gandhis in the room,” he said. “How many of you would share $5?”

Lots of hands.

“3?”

A few more hands.

“How many of you would share nothing?”

About ten hands went up. (Ok, yes, including mine.)

“You guys must be the economics students and professors,” he said.  In his parody, this is how trained economists perceive the situation: “‘The $10 has been given to ME, so it is MY money, and that student down the hall is NOT ME. So if it is MY money, and he is NOT ME, then that must mean I keep it for ME.'”  Later he clarified that most economists wanted to know that the other student would make the highest and best use of the money before giving it to them.

Psychologists call this The Dictator Game because the first student has all the power and all the money. Dubner went on to describe other variations of the game, which you can read about in his latest book, SuperFreakonomics. The variations on the experiment showed that the Dictator Game was a flawed indicator of a student’s altruism. Rather, a student’s altruism was also influenced by whether or not they knew someone was watching their decision; and by how the giving choice in the question was framed.

Ever been to a charity auction and watched in awe at the prices paid? Charities know some altruistic people can be more persuaded to give if their donation is public, in a fun, and competitive, setting, rather than private and anonymous. Others are the opposite. Knowing, and respecting, a donor’s altruistic personality traits can help charities raise more funds for their good causes.

Turning the tables, though, knowing how certain factors affect our own willingness to part with our money can help us make better decisions when caught off guard. What can we do to better prepare for the next unexpected request? Make a charitable plan an integral part of your financial plan, and share your intention with the charities who will benefit from your generosity.  Sharing your intention is like mortar to a charitable plan – it solidifies your commitment and reduces the chance you will deviate.

When you are approached by a charity not on your list, you can tell them, and yourself, that you have made your plan for the year (or the decade, or your lifetime) already.  If you are truly interested in their mission, you could ask them to contact you again when you will be revising the plan.  (October-November could be a good time for review, along with your year-end tax planning.)

However, if you are not interested in their mission, just tell them you already did your plan.  But, don’t say it like a dictator.  Instead, pretend you are an economist.