Monday, September 1, 2014

It's OK to make money hurting the poor, but not to make money helping them

“We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them.” These are the words of Dan Pallotta, an entrepreneur who, until the early 2000s, ran a company that organized charity fundraisers. In 2002, the company netted $81 million for charity—a figure equivalent to about half the annual giving of The Rockefeller Foundation. But it was based on a for-profit model, and it compensated as such, with Pallotta himself earning about $400,000 per year. When word of his salary got out, he came under intense criticism. “Shame on Pallotta,” concluded one critic.

But why? “Want to make a million selling violent video games to kids? Go for it,” Pallotta is quoted as saying in a 2008 New York Times column by Nicholas Kristof. “Want to make a million helping cure kids of cancer? You’re labeled a parasite.”

The problem is, people have a “general bias against the very notion of seeking personal gains from charity,” according to a recent paper in Psychological Science, authored by George Newman and Daylian Cain, both of Yale SOM. “People [evaluate] charitable actions that were ‘tainted’ by personal benefits as worse (less moral, ethical, etc.) than equivalent self-interested behaviors that produced no charitable benefit.” The authors labeled this the tainted-altruism effect. ...

The authors found a way to mitigate this effect. They assumed that tainted altruism is a product of what, and how, information is presented. When people consider charitable efforts that realize personal benefit, the two ends appear to be in contrast; people consider the same behavior as it might occur in the absence of self-interest and ultimately conclude that the person (or organization) did not behave as altruistically as he or she could have. However, when someone is only selfish, then that is the only behavior present. People do not spontaneously consider whether the person could have been more altruistic.

Newman and Cain thus ran experiments in which they provided different frames around the charitable giving. Their experiment on Gap (RED) presented four conditions: in the control condition, participants were simply given information about the Gap. In the altruism condition, participants read about the Gap and the (RED) campaign, through which 50 percent of profits were donated to charity. In the tainted-altruism condition, participants read about the Gap (RED) campaign, its donations, and the fact that the other 50 percent of sales profited the company. Finally, in what they called the counterfactual condition, after reading that Gap (RED) raised money for charity and earned a profit, participants were reminded that the Gap did not have to donate to charity.

The simple addition of this counterfactual was enough to reverse the results: whereas people would have typically judged charity paired with self-interest more negatively than no charity at all, by mentioning that Gap could have simply kept all the money, this perspective disappeared. As the authors put it, “presenting the counterfactual information…significantly increased ratings of morality.”
--Yale Center for Customer Insights on myopic evaluation