On Charity Lotteries
Trust me, I’m not trying to pick on lotteries (see my earlier post on the irrationality of lotteries here). But when you get down to it, they are fascinating – especially when you start to consider the question of rationality.
Why do people pay large sums to enter a charity lottery?
Young and new to the workforce, I have friends who’s income barely covers their living expenses. These hardworking optimists must have exceptionally big hearts because many of them participate in charity lotteries where the buy-in can be 100-200% greater than the cost of playing standard lottery games.
Take the Canadian-based SickKids Foundation Lottery benefiting the Hospital for Sick Children in Toronto, Canada. The proceeds of this charity aim to do extremely meaningful things for this organization including ending heart failure in kids, curing allergy in the next 10 years, and raising the survival rate for kids’ cancer – a cause that is very near to my heart. Tickets start at $100 CAD for one ticket, scaling up to 20 tickets for $900. The lottery boasts 1 in 2 odds for a slew of minor prizes, and a grand prize of one million dollars. In Canada, the yearly revenue for charities from charity lotteries is $700 million, with charities accessing $200 million after expenses, marketing and prizes. This is a big deal.
How do these charity lotteries differ from standard lottery games? There are a few main differences:
Ticket prices are often much higher than standard lottery tickets.
The odds of winning any prize are much higher than winning a jackpot in a standard lottery – but the grand prize is smaller than the jackpots often found with standard lotteries which start at ten million dollars.
The social benefits of a charity lottery are obviously stated – this lottery benefits SickKids. The standard lottery supports many charitable initiatives and doesn’t necessarily market on behalf of one specific cause.
Even still, this is a lottery, and the chances you will lose out from a notable prize and lose the value of your initial ticket are high. Furthermore, a research study in Canada found only 27% of each dollar ticket value was retained as funding for the charity – with the rest being spent on prizes and marketing.
Is playing the lottery rational? And what makes charity lotteries different from conventional ones? Consumer Psychology might offer some insights:
Self-Signals. The choices you make say something about you – and self-signalling refers to the self-information you gain from your choices rather than the you that is represented to the world. People are motivated to make choices that send themselves positive self-signals, such as being generous, charitable, and a ‘good person’. A charity lottery provides more positive self-signals than does a conventional lottery because of its inalienable link with the proceeds benefitting that specific charity. Charity lottery ticket-buyers may gain extra value from their participation from the self-signals because even if they don’t win they think they are making a donation to charity which reflects positively on their character.
Altruism. Is it really all about the prizes? Hassay and Peloza (2005) interviewed charity lottery ticket buyers who disclosed they saw the purchase of these tickets as a donation to support the charity or cause. They found that altruism was the primary motive for this behaviour, making the purchasing of charity lottery tickets a very different barrel of fish in comparison to the buying of standard lottery tickets. Altruism has long been a focus on Behavioural Economics because it may not always seem rational – for example, how can we explain individuals showing kindness or generosity to others when there is no chance for repeated future interaction with recipient? Even though this is a perplexing question, we still observe many examples of altruism in our day to day lives.
Deriving Pleasure from Purchasing. Putting the FUN in fundraising. Research has found that consumers derive considerable pleasure from shopping and buying, and all the more satisfaction when that shopping is in the form of experiential consumption. There is a sense of fantasy associated with experimental consumption of lottery tickets. This hedonistic aspect sweetens the deal and gets supporters involved.
Reciprocity. Although buying a ticket is being made akin to donating money to charity, the charity is giving you something back in return – they are also potentially giving you one million dollars. The transformation from a one-way money transfer to a two-way street revokes the social norm of reciprocity. Reciprocity is often discussed in the context of charities – where some organizations include a small gift in their appeal for donations. This transaction is of a different nature, however, because the transaction is not guaranteed.
The reality is that generally charities are experiencing challenges in raising the money that they need to fulfill their philanthropic missions. The number of charities seeking funding is growing each year. Beyond donations, research has found that charity lotteries need to be better understood in order to get a better sense of charity support behaviour.
Are charity lottery tickets donations – or are they another form of entertainment? Are you willing to participate in a charity lottery knowing some of the donations are going to be given away as prizes?
Back to the original question – why do my (poor) friends support charity lotteries? Perhaps they can mentally write the cost off as a donation, perhaps they get value out of the self-signal of being altruistic, or perhaps the better odds of a charity lottery offers a much more desirable chance they will earn some much needed cash back.
Note: I can’t recall a time when any of my friends actually won something from a charity lottery, but I sure hope they do soon!
Love,
Dr. D
Resources
Bodner, R., & Prelec, D. (2003). Self-signaling and diagnostic utility in everyday decision making. The psychology of economic decisions, 1, 105-26.
Dhar, R., & Wertenbroch, K. (2012). Self-signaling and the costs and benefits of temptation in consumer choice. Journal of Marketing Research, 49(1), 15-25.
Fehr, E., & Fischbacher, U. (2003). The nature of human altruism. Nature, 425(6960), 785-791.
Grossman, Z. (2010). Self-signaling versus social-signaling in giving. Department of Economics, UCSB.Fehr, E., & Gächter, S. (2000). Fairness and retaliation: The economics of reciprocity. Journal of Economic Perspectives, 14, 159-181.
Derek N. Hassay and John Peloza (2005) ,”Fundraising: Having Fun While Raising Funds”, in NA – Advances in Consumer Research Volume 32, eds. Geeta Menon and Akshay R. Rao, Duluth, MN : Association for Consumer Research, Pages: 605-605.
