Moneyball, Freakonomics & Philanthropy

I just read the fascinating article “What Makes People Give” from the March 9, 2008 edition of the New York Times Magazine. The article chronicles the attempts by John List and Dean Karlan (economists at Yale and the University of Chicago), to understand why people give.

List and Karlan considered the usual answers (to make the world a better place, to see your name printed in the back of an annual report and the like) too pat, too simple — and sometimes just wrong. Over the years, whenever one of them asked fund-raisers why they did what they did, the responses were vague and unimpressive. There didn’t seem to be much empirical evidence to support the strategies employed by most fund-raisers. So the two economists wondered whether charities were wasting a lot of effort…

…When charities are designing their donor appeals, they often go by nothing more than a few rules of thumb, some of which may be profoundly insightful and others a good deal less so. “I think some fund-raisers have developed terrific intuitions, passed on through the fraternity of fund-raisers,” says Paul Brest, president of the William and Flora Hewlett Foundation in Menlo Park, Calif., which often works with charities. “But a lot of the intuitions don’t work. Look at how much junk mail you get.” Matching gifts were another good example. People figured that they worked, because — well, how could they not? They seem so sensible…

The story reminds me of two of my favorite books, Moneyball and Freakonomics. In Moneyball, Michael Lewis studied the Oakland A’s use of statistical analysis to drive the way they built their baseball team and played the game. In Freakonomics, Steven Levitt and Stephen Dubner used economic analysis techniques to understand falling crime rates, the organizational structure of street gangs and the inner workings of professional sumo wrestling.

What both books (and the NY Times article) use as their premise, is that quantitative analysis is incredibly useful in understanding our world. Yet all three also understood that statistics do not themselves give you answers, they just help you understand your environment better so that you can more easily find the answers you are looking for. This is the promise of metrics and other statistically, quantitative measurements in philanthropy. They are not themselves the answers we seek, but they help describe the world we live in.

When used as tools to advance our understanding, metrics in philanthropy are wonderful. But when viewed as some sort magical answer that shows us the Truth, we are better off with Mark Twain as a source of insight than Moneyball or Freakonomics:

“There are three types of lies – lies, damn lies, and statistics.” – Mark Twain

6 Comments

  1. What an interesting take on this article! I’ve read it several times and passed it on to other people. It fascinates me because it contradicts the simple bullet points of typical fundraising advise. The parts that stuck with me were “pay to pray” (the idea that people donate to make up for other things they are not doing) and the idea that what people really want is to join a movement.

  2. One of the reasons it reminded me of Moneyball and Freakonomics is that readers of both books were surprised that careful study of the evidence showed that much of the conventional wisdom just wasn’t true.

    Speaking of joining movements, Seth Godin’s new book is about “tribes”. I think this is an important concept for the Third Sector to understand.

  3. Paul H says:

    Moneyball and Freakonomics are also two of my favorite books. Would another way to make your point be: “Statistics can show you why others are being dumb; but that doesn’t always make you smart.”

    Part of Billy Bean’s insight for the A’s was that the other teams were being dumb, thus creating an opportunity. But the real genius comes from then doing something with the insight. In comparison, Levitt’s insights have had arguably less impact (certainly neither of the presidential candidates seem to be aware of them ;-) .

    One indicator that someone is on the right track for a game changing innovation is the amount of ridicule they receive from those doing it the conventional way. When the Oakland A’s started drafting hitters that got on base by walks and managed their strike zones, Billy Bean was ridiculed. And he got these guys cheap, taking advantage of the market’s failure.

    The second interesting point (I think) is that things continue to change. So the Oakland A’s competitive advantage has been copied by others (Red Sox) and the A’s have reverted to the mean. Similarly, Levitt’s insights on abortion and crime rates are time limited. And his ideas on realator’s commissions still haven’t hit the big time.

    Eventually the innovative approach becomes the conventional wisdom. But for now, it would be great to see a bit more intelligence in the philanthropy field. Very few donors do systematic assessments, and of those that do, mostly it is on self-set and reported targets by the grantees. So better approaches could at least begin to demonstrate where the sector is being “dumb”. (For instance, Easterly’s criticisms of wasted trillions of foreign aid).

    But that is only half of the battle. The more intriguing thing is who is being smart as a result, how this is improving their impact, and how long they will be able to sustain this advantage.

  4. “One indicator that someone is on the right track for a game changing innovation is the amount of ridicule they receive from those doing it the conventional way.”

    This is also true in financial investing (ie. you were ridiculed for selling dot-com stocks in the late 90′s or renting your house until recently).

    So who is being ridiculed in philanthropy right now?

  5. Paul H says:

    My comment on ridicule was more from the entrepreneur’s perspective.

    But it’s a good question. First, it’s important to note that not all ridicule is aimed at those that are going to eventually have the last laugh. Some ridicule is well deserved.

    Here is my quick reaction (isn’t that what blogs are for)on areas where ridicule seems to be aimed in the philanthropy area:

    -Jeffrey Sachs and World Bank are being ridiculed for being “top down” and “Planners” by folks such as Bill Easterly, Paul Polak and some African economists. What was Einstein’s definition of insanity again? I doubt they will be laughing any time soon.

    -Venture philanthropy/ Philantrocapitalism is being ridiculed (well, at least criticized) by Michael Edwards in “Just Another Emperor.” This has raised hackles in the social entrepreneurship tribe, who don’t seem to take ridicule as a sign that they might be right. Maybe they should learn to laugh.

    -Traditional charities aren’t being ridiculed in public ( perhaps because everyone secretly hopes to get some money from them?). But when reports from the Center for Effective Philanthropy and Skoll reveal that a very small % of them actually measure the impact of their grants in any systematic way, perhaps they should be. And don’t tell me they can do what they want with their money… society gives them a major tax break. Shouldn’t they have some corresponding accountability to measure their impact? I doubt these folks will be laughing any time soon, or at least they shouldn’t be.

    OK, my self imposed 5 minute limit on comments is up.

  6. Jason Dick says:

    I love that quote from Mark Twain. I think measurable are great for nonprofits but they need to by into the process. If they do not buy in many nonprofits create statistics that donors want to hear but do not use them to improve their existing work.