If you were released from prison because a rich donor funded a project that proved you had been wrongfully convicted, would the shape of that donor's ears be of interest to you? If your elderly parent was able to receive music therapy to ease the distress of dementia, how relevant would the funder's poor fashion sense be? If your disabled child got access to extra interventions that improved her health and happiness, would you care that the services were funded by someone who’d gone through a very messy divorce?

These questions may sound ridiculous but John Arnold, Tom Hunter and MacKenzie Scott have all had aspects of their appearance and private lives raked over in the media in connection to their significant philanthropic efforts. John Arnold, who along with his wife Laura funds the Innocence Project and other successful criminal justice reform projects, was described as having the “jug-eared face of a Division III women's basketball coach” (Arnold 2014). Scotland's first home-grown billionaire, Sir Tom Hunter, who gave £1 million to Music for Dementia and the Alzheimer's Society after losing both his parents to Alzheimer’s, was mocked for wearing “lurid” colours and looking “as if he has been basted in glue and rolled around a branch of Topman” (Caesar 2006). MacKenzie Scott's announcement of her $5.8 billion of giving in 2020 was accompanied in many media articles with reference to her “spectacularly public” divorce from Amazon founder Jeff Bezos, and her philanthropy was interpreted as “fuck-you money” designed to show up her less philanthropic (so far) ex-spouse (Bryant 2020).

Ad hominem attacks on philanthropists, and assumptions they have disin genuous motives, are longstanding, as shown in Chapter 2. There is nothing new about these kinds of comments, but the rise of populism at the start of the twenty-first century has included a hardening of attitudes towards philanthropy and philanthropists, as charitable giving has become framed as yet another battleground between the will of ordinary people and corrupt or self-serving elites (Lewis 2019).

At root, populism is the denial of complexity, providing satisfying but erroneously simple answers to exceedingly complicated problems. This book argues that philanthropy is far more complex than most people realize, and requires far more nuance than many critics appreciate.

Introduction

The aim of this Appendix is to provide useful information about the practical aspects of conducting a laboratory experiment. The scientific process of running an experiment requires that the researcher goes through a number of important steps until the final paper is written up. In general, these steps include: (1) identifying a research question (and its motivation/added value relative to existing knowledge); (2) setting up the design of the experiment (i.e. how the research question can be addressed?) and formulating hypotheses (which can be based on economic/psychological frameworks and/or past empirical evidence); (3) preparing the practical aspects of running the experiment; and (4) collecting the data and writing up the paper. Our main focus in this Appendix will be to highlight some of the key elements and steps upon which the researchers place emphasis when they are actually preparing to conduct their experiments. We will discuss, in turn, the following four aspects: subject pool, context (of the instructions), recruitment/programming practices when running a laboratory experiment and possible design aspects that need to be decided when an experiment is in its design phase.

Subject pool

A first choice that researchers need to make before running an experiment is what their sample will be. To a large extent, the answer to this depends on the nature of the research question that is at hand. Typically, the most commonly used subject pool in laboratory experiment consists of university students. There are several advantages for using students as subject pools – as opposed, for example, to representative samples or professionals – which can be summarised as follows (for a more elaborate discussion on this issue, see Frechette (2017)).

1. Opportunity cost. The opportunity cost of students is lower compared to other subject pools such as professionals who normally receive relatively higher wages. Recruiting professionals or representative samples from the population may increase the budget needed for conducting an experiment substantially which may come at the expense of collecting less data (having implications about the power of the data and the reliability of the conclusions drawn from the experiment).

Introduction

A common characteristic of the experimental research discussed in previous chapters is that most studies examine human decision-making stemming from subjects who have been considered as being WEIRD (western, educated, industrialized, rich, democratic). Relying on students who form the bulk of the database in experimental research provides useful insights of actual behaviour, but at the same time, only focusing on findings from this subpopulation may hide important patterns of economic behaviour which may be uncovered by extending the focus of experimental research and examining countries characterized by different cultural and societal traditions. A key question to address is whether human behaviour from WEIRD populations is representative to wider contexts and if so, what the underlying processes and motivational forces shaping behaviour in such populations are.

Behavioural scientists are therefore faced with a challenge calling for more experimentation that explores behaviour in less standard populations. This has recently led to a significant increase in the number of experimental studies gathering evidence comparing the motivational universality of WEIRD populations to broader subject samples. In this chapter, we will discuss various cross-cultural studies examining key aspects of social preferences such as fairness, trust, cooperation and negative reciprocity. Before we turn our attention to these studies, it is important to highlight that conducting cross-cultural research is a challenging task that behavioural scientists are confronted with. There are several issues that need to be taken care of in order to minimize potential differences in the experimental protocols, allowing to achieve the maximum possible level for the comparison of human behaviour across a diverse set of societies. The focus of our analysis is on five factors which we discuss below. These issues are also discussed in the cross-cultural experiments by Roth et al. (1991) and Herrmann et al. (2008) who conduct cross-cultural experiments.

Language effects

There is a substantial body of research offering evidence that framing of the decision-making problem does matter. Consequently, how the context in which subjects interact is described is a key issue for which experimenters should pay attention in cross-cultural studies.

The death of a child is an unthinkable tragedy. A time-honoured way of coping with bereavement and trying to make something positive come from the depths of grief is to create a philanthropic legacy in memory of lost loved ones. In 1884, when Leland and Jane Stanford lost their only child, 15-year-old Leland Jr, to typhoid fever they decided to found a university in his name so that, in Leland Sr's words: “the children of California shall be our children” (Greer & Kostoff 2020: 53– 4). Stanford has become one of the world's top universities, producing over 80 Nobel laureates, one president of the United States (Herbert Hoover) and some of the most noted academics engaged in the scholarly study of philanthropy. Their work is appreciated by fellow philanthropy academics and has helped our subject become one that is taken seriously across the globe. But that body of work, which often argues that philanthropy is undemocratic, an exercise in power and insufficiently concerned about inequality, reinforces the problematization of philanthropy and ironically promotes a much narrower conceptualization of private giving than that expressed in their institution's founding gift.

The academic critique of philanthropy

Academic writing on philanthropy includes descriptive, analytical and theor etical work, and covers a huge range of topics and perspectives, which collect ively have advanced our understanding of the purpose and practice of private action for the public good. But three key concerns recur in this body of work that together constitute what I am calling the academic critique: that philan thropy is not democratic, not concerned about power dynamics and not focused on equality. The foregrounding of negatives is familiar turf for the “nonprofit sector” which, as the name indicates, is defined on the basis of what it does not do – it does not distribute a profit – rather than highlighting what the sector does do and does well. This results in the value and positive potential of philanthropically funded nonprofit action being obscured by a focus on negative characterizations.

Criticisms of philanthropy's undue influence on wider society, lack of accountability and resulting erosion of democratic principles are longstanding (Eikenberry & Mirabella 2017: 43), but are now receiving extensive attention and emphasis in contemporary scholarship, and are landing successfully with public, practitioner and policy audiences who are repeating and amplifying these concerns, which are explained in turn.

This book begins with a story about a philanthropist, some prostitutes and a proposition involving massage. It also begins with a warning not to jump to conclusions.

The philanthropist David Gold asked Shelagh O’Connor, director of the New Horizon Youth Centre in the King's Cross area of London, “What's the one thing you most want to do but you think no one will ever be willing to fund?” New Horizon was founded in 1967 to work with young people involved in substance misuse and, like all organizations dealing with social problems, its mission has evolved over time in response to the changing needs of the people it serves: 16– 24 year-olds with no one else to turn to. By the turn of the millennium, when this conversation took place, the centre's staff had noticed a sharp rise in vulnerable young women on their patch being drawn into sex work, many of them fresh off the train at King's Cross station. The centre's daily pro gramme of free meals, bathing facilities and help with education, employment and self-development was freely available to these young women but they did not come through the door. “What I’d like to offer”, said Shelagh, “is something to make them feel good about themselves, to remind them of their self-worth and potential. With more self-esteem they might decide to seek help and choose a different future, but there's to be no strings attached – no pressure to attend our programme in return.” And so David agreed to fund free reflexology, aroma therapy and massage sessions for these young women, many of whom – as wise Shelagh predicted – rediscovered their confidence and desire to move on, with the help of the centre's more traditional youth services.

Another big donor whose giving style challenges common assumptions about philanthropic aims and motivations is Dame Stephanie Shirley, known as “Steve”, a name she started using when her attempts to succeed in the male-dominated world of computer programming were stymied by people refusing to take meetings with a woman. Her company, Xansa, peaked at over £2 billion some time after she retired in 1993. In common with many wealthy people, she has amassed a large private art collection.

Introduction

In the previous chapter, we discussed evidence about the importance of sanctioning as a mechanism that can overcome the breakdown of cooperation and sustain high contributions. In all these experiments, a common characteristic was that the rules of the games were (randomly) determined and imposed exogenously by the experimenter. This means that the institution (i.e. public good environment) that subjects face in the experiment was not the result of their choice, a design aspect that prevents us from understanding which institution subjects would prefer to select and how they would behave in a situation where subjects can make such a choice. Part of the focus of this chapter will be on subjects’ preferences over institutions, but also on how the endogenous selection of institutions influences the evolution of cooperation and how the endogenous vs the exogenous assignments to institutions compare with each other.

Most of the extant literature implements the endogenous assignment to institutions through the use of different voting rules (e.g., ballot voting or “voting with one's feet”) resembling the real-life democratic processes that are employed when individuals decide for the introduction of a new rule. The earlier relevant literature has primarily focused on the selection of environments that offer rewards and punishments which will also be our concern for the first half of this chapter. Following this evidence, subsequent experiments have examined how people vote for different aspects of the respective institutions such as whether contributions to the private or the public account are punished, who will get punished or what the maximum level of punishment will be, among others. Broadly speaking, the main focus of this literature is on individuals’ institutional preferences as measured by their voting decisions (i.e. do individuals prefer societies characterized by sanctioning and/or rewards?) and how such decisions affect outcomes (in terms of cooperative behaviour but also efficiency/earnings). These are important questions, helping us to gain a better understanding of the behavioural determinants of human cooperation and, given the complexity of the analysis of voting processes in real-life, the application of experimental methods appears suitable (allowing us to avoid potential identification issues that may be present in the field).

Introduction

Extensive evidence from public good game experiments (also presented in Chapters 4 and 5) provides robust evidence that average contributions decline over time. A natural question that has occupied the interest of behavioural economists is whether we can identify mechanisms that can overturn the decaying pattern. One of the key mechanisms that has been proposed is that of monetary sanctioning, a study which was pioneered by Fehr and Gachter (2000). A motivation for this mechanism stems from earlier findings in public good games showing that people have heterogeneous preferences in that some subjects are selfish and others are conditional cooperators. The lack of a tool that regulates self-interested behaviour makes conditional cooperators behave as if they are selfish since they understand that there exist free riders in the group who do not contribute to the public good. The result is that the interaction between selfish individual and conditional cooperators drives average contributions down. To encourage cooperative norms, Fehr and Gachter (2000) proposed a two-stage public good game, called the “public good game with punishment”. This is the main framework which Chapter 7 is based on.

The structure of the public good game with punishment is as follows. The first stage of this game is identical to a standard public good game where each member in a group is asked to decide how much to contribute to the public good. In the public good game with punishment, an extra phase is added where subjects are informed of the contribution profile of the other group members and has to decide whether to assign punishment (negative) points that have a monetary impact on their total payoff. In particular, the assignment of punishment points is costly both for the punisher and the punished group member. From a standard economic perspective, this implies that a subject, who is purely selfish and only cares about maximizing their own income, will refrain from assigning negative points (because their assignment is costly) in the second stage. As a result, a selfish individual will also contribute nothing to the public good in the first stage of the game.

Having shared stories of a range of philanthropists from across the centuries and across the world, this concluding chapter starts with three men from the second half of the nineteenth century – an English constitutional expert, a Swedish chemist and a Swiss businessman – mentions 14 cows and a princess, and ends with a namecheck for Noah (of the Ark) and the Roman god Janus. All will become clear.

Writing about the need for the British monarchy to avoid public and parlia mentary scrutiny, Walter Bagehot declared, “We must not let in daylight upon magic” (Bagehot 1867). While an air of mystery may have proved useful for the Crown in maintaining support for its role and relevance in modern society, this is clearly not the case for philanthropy. Reticence to engaging with the growing chorus of concerns about the legitimacy and impact of private giving, and the absence of counterarguments to academic, insider and populist critiques, has left philanthropy looking distinctly dodgy rather than helped it to maintain an air of advantageous mystique. All those involved in the philanthropy sector – whether as donors, doers or part of the mediating infrastructure – need to get better at explaining the positive value and contribution of philanthropy. Letting a little daylight in on how and why philanthropy happens in practice – every day, in every community, with everyone involved as givers and takers – might help to slow, or even reverse, the tide of unfavourable and unhelpful narratives.

Twenty-one years after Bagehot's declaration, a Swedish man, Ludvig Nobel, died in France unexpectedly and prematurely from a heart attack. After a jour nalistic mix-up where the deceased man was confused with his brother, Alfred Nobel found himself in the unusual position of being able to read his own obituary. What he read horrified him: he was described as a chemist whose invention of dynamite had made it possible to kill more people more quickly than anyone else who had ever lived. Unsurprisingly, Alfred became obsessed with improving his posthumous reputation and in 1895 signed his last will and testa ment in which he bequeathed his substantial fortune to create the Nobel Prizes for outstanding achievements in literature, peace, economics, medicine and the sciences.

Every fan of the murder mystery genre, among whom I count myself, knows that the satisfactory conclusion of a case requires assembling all the potential culprits to identify three elements that reveal the guilty party among them: the means, the motive and the opportunity for the crime. In our case, is philanthropy guilty of being a plutocratic power grab that promotes donors’ hidden agendas and causes more harm than good? Do philanthropists have the means, motive and opportunity to be revealed as the villains among us?

Do big donors have the means to cause harm?

Clearly the richest philanthropists possess unimaginably vast fortunes, but even the $195 billion wealth of the world's richest individual in early 2021, Jeff Bezos, is a fraction of the annual expenditure of governments such as the US, China, Germany, Japan and France which count their annual expenditure in trillions. Bezos could cover the annual running costs of Denmark or Indonesia for one year, or Ecuador for five years, or one smaller Pacific island for a generation, which is still a startling fact, but easily disproves the possibility of plutocracy. The biggest philanthropic spending in 2020 by an individual was MacKenzie Scott's $5.8 billion distribution. Even if we look only at one area of spending, such as health or education, philanthropists lack the means to compete with either national or state spending (Scott's 2020 giving could just about cover healthcare costs for one year in one small US state such as Wyoming or Hawaii), or global institutions of governance such as the World Health Organization (annual budget in 2020– 21 c.$6 billion) or the World Food Programme (total income in 2019 $8 billion). Private donors can and do make substantial contributions to the success of those programmes but are in no position to take them over or become anywhere near “majority shareholders”. Nor do big donors have any thing like the means to outspend and overpower the wishes of “ordinary” donors.

To take the biggest philanthropy that has existed to date: the Bill and Melinda Gates Foundation has distributed $55 billion in the 20 years since its founding in 2000. That two-decade total is worth less than a quarter of the one-year total of all annual giving in the US, which was $450 billion in 2019 (Giving USA 2020).

The present book offers an introduction in the experimental economics literature pertaining to aspects of individuals’ social preferences. In its nine chapters and two appendices, this book discusses some key experimental economics paradigms that behavioural scientists are frequently using in order to gain a better understanding of human behaviour. These paradigms consist of bargaining games, trust games, simultaneous public good games without and with punishment, and sequential public good games. The extant literature has produced a huge literature and has considerably advanced our knowledge. The aim of this book is not to present a comprehensive literature review of the existing social preferences experiments. Instead, we offer an accessible discussion of a selective part of the literature that can be used for a semester-long course in behavioural and experimental economics, with a focus on social preferences. The book is targeted at those who have little background in the field of experimental economics and the choice of the topics discussed reflects a bias towards my own research interests. However, it is hoped that the offered discussion presents a series of novel and influential experiments in the literature.

It is also important to underscore that the length of each chapter has been selected with the main principle being that the material presented should be no more than 20 pages, which seems to be a sensible length for students’ weekly workload. In parallel, it was aimed that for some important papers, the key aspects of the experimental design, hypotheses and results are presented. The primary objective was to make the content of the book friendly to students, keeping the language as simple as possible (unlike academic papers which may use more technical terms sometimes) and helping them absorb the key elements more easily. At the same time, some experiments which are discussed in less detail aim to give students a general idea of the corresponding literature. Providing all this level of detail (at least) for some of the papers comes at a cost of limiting the number of papers that can be discussed in a given chapter but on the other hand, this structure hopefully gives a clearer description of the key papers, compared to other behavioural economics textbooks which only focus on a brief discussion of the main findings of papers.

Southsea Common is a large open space next to Portsmouth seafront on the south coast of the UK. Today it is a safe place to picnic, fly a kite or enjoy the beach volleyball court, but one bonfire night near the end of the nineteenth cen tury it was the site where an energetic female philanthropist, Sarah Robinson, was burnt in effigy for being “The Best Hated Woman in Portsmouth” (Black 2015: 47). What did Sarah do to provoke others to set her image on fire in a sym bolic act of violence? She used her own money, including selling her possessions, and fundraised for decades to establish and run the Soldier's Institute for Portsmouth, which pioneered a new ethic of care for military employees, pro viding hospitality for soldiers and their families in need of accommodation, education and entertainment, as well as a place of worship in line with her commitment to evangelical Christianity. Her efforts were opposed by those who did not appreciate female meddling in military culture, and disliked her decision to offer an alcohol-free welcome to those she felt might otherwise have fallen prey to the squalor and drinking culture then prevalent in the town. Despite being disabled by a spinal condition, Robinson faced continuous verbal and physical abuse – “I could not go out in a cab without dirt being thrown on me; our windows were broken, doormats stolen; disgusting anonymous letters sent” (Robinson 1892: 158) – and was the butt of a mocking music hall song before her likeness was burnt. She described herself as being able to withstand public and media abuse but noted that such criticism can deter donors because “others are not so ‘thick skinned’, and this kind of thing prevented ladies joining me” (Robinson 1892: 158).

Over a century later, philanthropists continue to be “burnt” and have dirt thrown at them, although the site has moved from grassy seafronts to social media. In the first decades of the twenty-first century big donors have attracted public censure for giving too much and too little, for giving publicly and giving secretly, for giving at home when need is greater overseas and for giving overseas and therefore not caring about needs at home.

The question I have been asked most often during both halves of my career, first as a fundraiser and now as a philanthropy scholar, is: “Why do people give?” Often it is a genuine enquiry into the most common reasons that prompt people to donate their own money voluntarily. Sometimes it is phrased as a challenge, goading me to expose the “real”, self-interested motivations that the questioner believes prompt donations, such as dodging tax or as a cover for bad behaviour.

Luckily for me the question “why do people give” has a simple answer that is supported by reams of research, as well as by a moment's reflection on your own charitable donations: people primarily give for personal reasons. Most of the time, most people donate to issues and causes that have touched their lives, for better or worse. This is why Cancer Research UK is the top fundraising charity in the UK, because half of us will receive a cancer diagnosis at some point in our lives, and everyone has loved ones with this disease. Children's char-ities and animal welfare charities are also among the most popular fundraising causes because of our universal experience of being a child, the commonplace experience of being a parent and the widespread ownership and enjoyment of pets. Nonprofit organizations focused on cancer, kids and kittens achieve wide spread support because they are aligned with common personal experiences and preferences, and because it is easy to feel affinity with their beneficiaries (Breeze 2013). Some of the most significant and well-known major philanthropic efforts are driven by the same sort of personal factors.

When John D. Rockefeller's baby grandson Jack died of scarlet fever in 1901, he “grieved profoundly” and decided to establish the first institute in the US to focus on biomedical research (Hirsch 2011: 278). Since 1910, the Rockefeller Institute for Medical Research has produced 26 Nobel Prize winners, played a key role in discovering DNA and advancing the science of cell biology, and contributed to understanding and curing a range of diseases including meningitis, pneumonia, African sleeping sickness and cancer (Rockefeller University, n.d.).

Introduction

One of the most fundamental issues in the social and behavioural sciences is to understand whether and if so, under which conditions individuals are willing to cooperate in situations where personal interests are at odds with collective benefits. These situations reflect many naturally occurring environments including voting, tax compliance, corruption, teamwork, environmental protection. In all these cases, a rational individual who cares about maximizing their own payoff will always choose to free ride and rely on the contributions of others. In contrast, the society as a whole will benefit by having individuals cooperating and contributing towards the social good. A well-known example is the so-called “Tragedy of the Commons” (Hardin 1968). In this setting, each farmer caring only about their own welfare has an incentive to let as many cattle as possible use the commonly shared resource. However, this sort of behaviour comes at the expense of each other farmer as this would lead to overconsumption and eventually, the depletion of the common resource. If farmers, on the other hand, manage their common-pool resources in a sustainable manner, the resulting outcomes would be better for the welfare of the society. This conflict between personal and collective goals has attracted the interest of behavioural economists who have systematically explored the circumstances under which human cooperation can be achieved when strong financial incentives suggest the opposite.

The most commonly used framework that has been employed to understand human cooperation in a controlled laboratory context is the so-called “public good game”. The structure of this game is very simple: subjects randomly form a group of n members, each of whom is given a fixed endowment of E tokens. Their task is how to allocate their fixed endowment between their private account and a public account. Allocating tokens in the private account benefits only the group member, whereas allocating tokens in the public account benefits the other members of the group. In order to capture the tension between personal gains and collective goals, the parameters of the game are such that a rational and selfish group member will always free ride (i.e. contribute zero tokens to the public account).