An Irrational Market for Charity

Don't let the title fool you.  I'm not stating that charity is irrational.  However, the many ways in which we go about it can be irrational.

Take Starbucks for example.  Today, they are donating “5 cents to the Global Fund for every hand-crafted Starbucks beverage sold.”  Now, instead of bringing out an easel with charts and graphs discussing deadweight loss, there is a much simpler way of relaying to you why this type of charity works.

In a short, simple phrase: We, human beings, are irrational.

Let me put it this way.  What if I were to go on television and try to tell you that I wanted to organize a day in which nobody bought a Starbucks' coffee, and instead, spent the amount of money they would use for a latte towards the Red Cross?  Well, I'd wager that the Red Cross would receive less money than the Global Fund.

Now, think about that.  The coffee costs $3 or $5.  Starbucks is only donating $0.05 per purchase, and I'm still saying Starbucks would be giving more relative to my “don't buy coffee, donate the money” plan.

Why would I say such a thing and make the wager?  Here's the thing.  In Starbucks' plan, you don't have to do anything different.  In fact, most people will probably be “donating” without knowing it.  But remember, the consumer is not donating, Starbucks is.

In fact, Starbucks just might make a bit more of a profit today because they are donating.  How?  The great thing for Starbucks is that they are getting people who normally wouldn't buy a latte today, to go ahead and buy one.  Why, because the people who know about this will able to feel good about indulging themselves.

So, is this inefficient?  Yes.  Is it irrational?  In terms of donating, yes.  But is this probably the best way to make yourself feel like you're donating?  You bet.


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