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Behavioural Economics in fundraising: Time to get on board?

coffee & macaroon

=mc director Bernard Ross and Omar Mahmoud Chief of Market Intelligence, UNICEF International presented a session at the National Fundraising Convention on behavioural economics. Below Omar Mahmoud suggests some of the issues they talked about. Based around their forthcoming book Change for Good, Using Behavioural Economics for a Better World.

Behavioural economics – why it’s time for Fundraisers to wake up and smell the coffee

System 1 and System 2 Fundraising

If I offer you two choices for a cup of coffee: Small for £2 and Large for £5, which one would you choose?

Many will go for the small £2 coffee. It is less than half the price of the large size.

Now if I give you three choices: Small for £2, Medium for £4.50 and Large for £5, which one would you choose?

Many people would switch to the large £5 size, which is, after all, only £ 0.50 more expensive than the larger size.

This is obviously, or perhaps not so obviously, irrational. Why? Because I offered you A and B and you chose A. Now I offer you A, B, and C, and you choose B, which was already there when I offered you A and B. This is one of many biases of our thinking that behavioural economists are uncovering and marketers are applying to their communication, advertising, pricing, and everything else they do. But fundraisers aren’t, yet.

The pioneer of this work is Daniel Kahneman, a psychologist who won the Noble prize in Economics in 2002, and author of my all-time favourite book; Thinking, fast and slow. Kahneman’s main idea is that our brain uses two systems to process information and make decision: System 1 is fast, intuitive, implicit, unconscious, while System 2 is slow, analytical, explicit, and conscious. Since our brain is only 2% of our body weight, but consumes 20% of our total energy consumption, our organism tries to save energy by not thinking too hard about most matters. So, we usually operate on System 1, and only switch to System 2 when we have to. Think about when you learnt how to drive (or bike). In the beginning, you focus all your conscious attention on what you
are doing (System 2). As you master the skill, it becomes easy, and now you can do other things while driving (talk, listen to music, write fundraising appeals, etc.) and move the driving to your subconscious mind (System 1). When you drive on the highway, you use System 1. When you need to make a turn, you switch to System 2.

Teh brian cna do azaming thnigs. In teh biegnning it is a bti hrad to raed . Btu jsut atfer a fwe wrods yuo gte it adn enev bceome feulnt at it. Tihs is juts aotnher emaxple of Sytsem 1ni atcion.

Kahneman, and other behavioural economists, identified the systematic ways in which we make biased decisions by using mental short cuts, or heuristics. These heuristics can be broadly classified into Cognitive (if it is easy or familiar, it’s probably true), Emotional (How I feel about it, rather than what I think of it), and Social (I’ll have what she is having). The list of heuristics includes Framing, Anchoring, Priming, Availability, Recognition, Loss Aversion, and more.

The implications for influencing decisions are tremendous. We can influence people’s perception and decisions, without changing the facts, just by presenting them differently, by understanding the relevant emotions in a given context, and by referring to group behaviour. Importantly, we learn from behavioural economics that small changes can have a big impact.

“Thinking is to humans as swimming is to cats; we can do it if we have to, but we’d rather not.”

– Daniel Kahneman

So, why aren’t fundraisers applying more of the behavioural economics findings? Because, they too, and not only their donors, are using System 1. They (not us of course), operate on autopilot (System 1). They do what is familiar, recognisable, likeable, what has worked in the past, what’s lower risk, what others are doing. It’s hard to step back and operate on pilot (System 2), especially if you are smart and successful.

Fundraisers, compared to marketers, have the advantage of the ease of A vs. B testing. They can make small changes on their website, email, or direct mail envelope, and measure what happens. But testing in a void is throwing darts in the dark. You can achieve better results by having an overall conceptual model and a set of principles that guide your testing. Welcome to behavioural economics.

If you want to know more, let’s talk during the National Fundraising Convention. Coffee on you… Large please.

What’s next?

Read the full article by Bernard Ross and Omar Mahmoud on Behavioural Economics: why we think much less than we think we think… and why it’s important
Find out how =mc can help improve your fundraising, email Bernard Ross
Follow @bernardrossmc and @mgmtcentre on Twitter for the latest updates on this and other sector relevant articles.

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Bernard Ross

About Bernard Ross

Bernard is an internationally regarded expert in strategic thinking, organisational change and personal effectiveness. He works in Europe, USA, Africa and South America. His assignments have involved a wide range...