What ‘The Big Short’ Can Teach You About Increasing Revenue
This week, University of Chicago business professor Richard Thaler won the Nobel Prize in Economic Sciences. For years, he has been one of the leading players in the new field of “behavioral economics.”
In the past 30 years, the way that economists understand people’s behavior has undergone a revolution. While classical economics is based on the notion that people act with rational self-interest, many of their decisions seem far from rational. Behavioral economics was born out of the necessity to explain these seemingly irrational choices.
Earlier this year we published a book titled “Dollar Dash.” The subtitle of the book is “The Behavioral Economics of Peer-to-Peer Fundraising.” In Dollar Dash, we quote Thaler, when he says that behavioral economics, “… is not a different discipline: It is still economics, but it is economics done with strong injections of good psychology and other social sciences.”
Behavioral economics sheds light on the many subtle and not-so-subtle factors that contribute to our decisions. In Dollar Dash, we describe how psychological factors affect choices about how people commit their time and resources to nonprofits. Sometimes these decisions are counterintuitive. For example, often people’s fundraising performance improves when they receive fewer incentives. In many circumstances, rewards demotivate people. Or, paying a registration fee for your event makes people less inclined to fundraise. You will enjoy greater net income if you don’t have one.
Unlike most Nobel Prize winners, Richard Thaler was already pretty well known. He wrote the 2008 best-selling book, “Nudge,” about how to help people make better choices. He also played himself in the 2015 movie, “The Big Short,” delivering an explanation of the causes of the 2008 financial crisis.
“Nudge” is about using behavioral insights to give people a nudge in the right direction when they are making decisions. His ideas have influenced governments to improve a wide range of public services—from getting people to save more for retirement to simple things, like paying their car registration fees. It’s all about overcoming peoples’ “inertia” and getting them to act (Thaler avoids using the word “lazy”).
Turnkey uses the same behavioral tendencies Thaler describes in “Nudge” to overcome inertia and get people to fundraise for nonprofits. The key is to get them to make that first step, take the first action. Sign up for an email list, post on Facebook, register for an event—whatever. And once their initial inertia has been overcome, they are far more likely to do more on the nonprofit’s behalf.
Peer-to-peer contact is the magic that makes that first action happen. Do a direct response campaign, and you are ecstatic if you get a three percent return. Do a peer-to-peer campaign, however, if you don’t get 30 percent, you’ve done something wrong. Peers overcome inertia.
Behavioral economics works, because it connects economic decisions with psychology. People don’t make decisions in isolation from their friends, family and acquaintances. They’re influenced by what people in their social groups think and do, as well as by what those outside their groups do—whom we identify with and our desire to fit in influences decisions. New decisions are influenced by past decisions. Peer-to-peer fundraising—when done right—takes advantage of all of these social levers.
We are a bit like fish; we swim in a sea of social influence, but often seem unaware of the water. Although social influence biases most everything we do, when surveyed, less than one percent of us think we are as biased as the average person. As University of Pennsylvania economist Jonah Berger says, “Peers don’t just affect what we choose, they motivate us to action.” By understanding these biases, we can harness their power.
That’s exactly what we do with peer-to-peer fundraising.
Katrina VanHuss and Otis Fulton have written a new book, Dollar Dash, on the psychology of peer-to-peer fundraising. Click here to download the first chapter, courtesy of NonProfit PRO!
Otis Fulton, Ph.D., spent most of his career in the education industry, working at the psychometric research and development firm MetaMetrics Inc., Pearson Education and others. Since 2013, he has focused on the nonprofit sector, applying psychology to fundraising and donor behavior at Turnkey. He is the co-author of the 2017 book, ”Dollar Dash: The Behavioral Economics of Peer-to-Peer Fundraising” and is a frequent speaker at national nonprofit conferences. With Katrina VanHuss, he co-authors a blog at NonProfit PRO, “Peeling the Onion,” on the intersection of psychology and philanthropy.
Otis is a much-sought-after copywriter for nonprofit fundraising messages. He has written campaigns for UNICEF, St. Jude’s Children’s Research Hospital, March of Dimes, Susan G. Komen, the USO and dozens of other organizations. He has a Ph.D. in social psychology from Virginia Commonwealth University and a Bachelor of Arts from the University of Virginia, where he also played on UVA’s first ACC champion basketball team.
Katrina VanHuss has helped national nonprofits raise funds and friends since 1989 when she founded Turnkey. Her client’s successes and her dedication to research have made her a sought-after speaker, presenting at national conferences for Blackbaud, Peer to Peer Professional Forum, Nonprofit PRO, The Need Help Foundation and her clients’ national meetings. The firm’s work is underpinned by the study and application of behavioral economics and social psychology. Turnkey provides project engagements, coaching, counsel and staffing to nonprofits seeking to improve revenue or create new revenue. Her work extends into organizational alignment efforts and executive coaching.
Katrina also regularly shares her wit and business experiences on her and Otis Fulton's NonProfit PRO blog “Peeling the Onion.” When not writing or researching, Katrina likes to make things — furniture from reclaimed wood, new gardens, food with no recipe. Katrina’s favorite Saturday is spent cleaning out the garage, mowing the grass, making something new, all while listening to loud music by now-deceased black women, throwing in a few sets on the weight bench off and on, then collapsing on the couch with her husband Otis to gang-watch new Netflix series whilst drinking sauvignon blanc.
Katrina grew up on a Virginia beef cattle and tobacco farm with her three brothers. She is accordingly skilled in hand to hand combat and witty repartee — skills gained at the expense of her brothers. Katrina’s claim to fame is having made it to the “American Gladiator” Richmond competition as a finalist in her late 20s, progressing in the competition until a strangely large blonde woman knocked her off a pedestal with an oversized pain-inducing Q-tip. Katrina’s mantra for life is “Be nice. Do good. Embrace embarrassment.” Clearly she’s got No. 3 down.