Individuals who receive higher bonuses due to sheer good luck do not give more to charity – and in some cases, they actually give less. These are the findings of experimental research by Mirco Tonin and Michael Vlassopoulos, to be presented at the Royal Economic Society”s 2014 annual conference.
The researchers asked around 100 people to perform a data entry task for a fixed wage of £5 per hour, plus a bonus dependent on performance. Despite very similar performances, half of them randomly received a low bonus (£2 per hour), while half received a high bonus (£6 per hour). After completing their four-hour job, people were asked whether they wanted to donate some of their earnings to a charity.
Those receiving a high bonus were less likely to give than those receiving a low bonus: only 21% for the former but 37% for the latter. As a result, the same total amount was collected from the two groups (9% of earnings). The most popular charity was Cancer Research UK, followed by the British Red Cross and Doctors without Borders.
Co-author Mirco Tonin comments:
”Our results suggest that receiving higher pay due to luck does not generate a stronger need to ”give back to society”. This is probably because people attribute their high pay to their own skills and effort rather than luck, and thus feel entitled to it.
”From a fundraising perspective, this suggests that charities should not target their effort solely towards high earners and disregard low earners. Rather, they should spread their efforts across the whole of society.”
Suppose you win a certain amount at the lottery. Are you going to donate part of it to charitable causes? What if you have earned the same amount through hard work? A robust finding is that people are more likely to share when income is due to good luck, that is, so-called windfall income, compared to when income is just due to effort.
In many cases, however, income is determined by many different factors, including skills, effort and luck, and it is often not straightforward to disentangle the independent contribution of all these different factors, in particular, because in most instances good luck needs to be combined with some effort to bear fruits.
For example, whether you get a big performance-related bonus at the end of the year depends probably on a combination of your effort and some exogenous factors (such as market performance), but even in a booming economy you need to put some effort to be successful.
This study explores whether people who earn a higher income are more likely to give, in an environment in which earnings depend on luck but not in a manner that makes its contribution obvious, nor are they independent of effort, as good luck must be complemented with effort to generate income. To do this, the researchers design a real effort experiment, in which participants perform an online data entry task for four hours and their pay depends on performance.
All participants receive the same fixed hourly wage (£5), plus a bonus dependent on the amounts of records they enter. Participants are randomly split into two groups, one receiving a low piece rate, the other receiving high piece rates. The performance at the end of the job is very similar between the two groups, but, because of the difference in piece rates, members of the first group earn on average £2 per hour in variable pay, while members of the second group three times as much.
Participants work remotely, without being aware of the other workers or of the fact that pay is different across groups. They are simply informed about their own pay. At the end of the job, they are asked whether they want to give part of their earnings to a charity of their choice, selected among a list of ten.
Despite large differences in earnings due to the different piece rates, the propensity to give is actually lower for those with higher earnings. Moreover, conditionally on giving, the average proportion of earnings donated across the two groups is the same.
As a result, charities receive the same average donation from members of the two groups, corresponding to 2.5% of total earnings, close to the average level of donations as a share of household expenditures in the UK. The most popular charity was Cancer Research UK, followed by the British Red Cross and Doctors without Borders.
This seems in contrast to the previously discussed finding that people are more likely to give out of windfall rather than earned income. Why is this the case? Psychologists have well documented the human tendency to attribute good outcomes to own actions, rather than to external factors such as luck (the so-called ”self-serving attribution bias”).
Here, this process may lead subjects in the high piece rate group to attribute their high earnings to their own effort, even if in reality the difference in earnings between the two groups is due to luck. In turn, this distorted feeling of entitlement may furnish subjects in the high piece rate group the moral ground not to act more generously.
”Sharing One”s Fortune? An Experimental Study on Earned Income and Giving” by Mirco Tonin and Michael Vlassopoulos
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