Some charities are much more cost-effective than others, which means that they can do more with the same amount of money; yet most donations do not go to the most effective charities. Why is that?

Donors vastly underestimate differences in charities’ effectiveness. Lucius Caviola et al. Judgment and Decision Making, Vol. 15, No. 4, July 2020, pp. 509–516. http://journal.sjdm.org/20/200504/jdm200504.pdf

Abstract: Some charities are much more cost-effective than other charities, which means that they can save many more lives with the same amount of money. Yet most donations do not go to the most effective charities. Why is that? We hypothesized that part of the reason is that people underestimate how much more effective the most effective charities are compared with the average charity. Thus, they do not know how much more good they could do if they donated to the most effective charities. We studied this hypothesis using samples of the general population, students, experts, and effective altruists in six studies. We found that lay people estimated that among charities helping the global poor, the most effective charities are 1.5 times more effective than the average charity (Studies 1 and 2). Effective altruists, in contrast, estimated the difference to be factor 30 (Study 3) and experts estimated the factor to be 100 (Study 4). We found that participants donated more to the most effective charity, and less to an average charity, when informed about the large difference in cost-effectiveness (Study 5). In conclusion, misconceptions about the difference in effectiveness between charities is thus likely one reason, among many, why people donate ineffectively.

Keywords: cost-effectiveness, charitable giving, effective altruism, prosocial behavior, helping