Warm-glow giving
According to the original warm-glow model developed by James Andreoni (1989, 1990),[1][2] people experience a sense of joy and satisfaction for "doing their part" to help others.
The existence of a warm glow helps explain the absence of complete crowding-out of private giving by public grants, as predicted by classical economic models under the neutrality hypothesis.
[21] Similarly, Plato's organization of motivations as responses to hunger-based desires highlights the foundational importance of egoism in all social interactions.
[2] Warm glow is at least tangentially related to the topic of free will, as people should only reap the psychological reward of helping if they freely choose to do so.
[1] The normative theory of Ricardian equivalence suggests private spending should be unresponsive to fiscal policy because forward-looking individuals smooth their consumption,[24][25] consistent with Modigliani's life-cycle hypothesis.
[28] Thus, warm glow and the failure to act as purely altruistic present fundamental challenges to the neutrality hypothesis and Ricardian equivalence.
[1][8] In economics, violations to the neutrality hypothesis pose serious concerns for macroeconomic policies involving taxation and redistribution; and microeconomic theories for collective action and public good provision.
[31] "...a millionaire does not really care whether his money does good or not, provided he finds his conscience eased and his social status improved by giving it away..." -George Bernard Shaw.
[49] A more recent body of research has identified several important determinants of warm glow, including social distance,[50][51] vividness to the beneficiary, and guilt avoidance.
[22] In his "empathy-altruism hypothesis", Batson claims that empathy ("feeling sympathetic, compassionate, warm, softhearted, tender") evokes a desire for other-regarding behavior.
[55] Consistent with the "identifiable victim effect",[56] research has shown that people express a greater willingness to help when others are known, as opposed to statistical.
[49] In a recent publication, Andreoni and colleagues explain this by writing: "Psychologists posit that giving is initiated by a stimulus that elevates sympathy or empathy in the mind of the potential giver, much as the smell of freshly baked bread can pique appetite.
A meta-analysis of 36 studies using functional magnetic resonance imaging demonstrated that the brain's reward networks are consistently activated when choices to give are made.
[60] One of the earliest attempts to formally model the warm glow phenomenon can be found in "A Theory of the Calculus of Voting" by Riker and Ordeshook (1968).
Just as an economic warm glow motivates people to willingly forego their scarce resources, the psychological utility described in early voting models serves to explain otherwise irrational behavior.
[12] Because many forms of extrinsic rewards and punishments have failed to promote long-term improvements in environmentally conscious behavior,[62] there is a growing emphasis on intrinsic warm glow.
[63] Supporting businesses engaged in corporate social responsibility (CSR) initiatives may give consumers a vicarious warm glow.
However, recent research suggests that consumers may expect to overpay when companies engage in CSR due to perceptions of price fairness.
The implication that "doing good" carries a financial burden for businesses leads consumers to infer general price markups.
[64] There is also evidence that product warm glows may play a role in a process called "hedonic licensing", in which consumers who perceive a moral surplus subsequently allow themselves more leeway to make selfish purchases.
The concept of warm glow stands in contrast to the conventional behavior outlined in decision theory, often referred to as "consequentialism", where the utility of prosocial investors is directly linked to the level of impact generated by their investments.
Companies are incentivized to engage in greenwashing or "impact-washing",[67] promoting "light green"[66] financial products that provide emotional satisfaction but lack substantial impact.
To address this concern, positive externalities can be quantified in monetary terms so that investors adjust their willingness to pay coherently with the level of impact of the sustainable investment.
While this model assumes a high degree of sophistication on the part of the individual, research by Andreoni, Rao, and Trachtman explores this very phenomenon by observing avoidance and donation behavior of customers entering a supermarket during the holidays.
According to their model, "empathetically vulnerable" individuals who are not able to give (for budgetary reasons), faced the greatest incentive to avoid collectors because of the guilt they would experience upon saying "no".
As a consequence, the social signaling component of the warm-glow effect (in extrinsic operationalizations of warm glow) suggests individuals should be motivated to make the minimum donation to acquire their desired categorical status.
For example, United States citizens directed more than 60% of their total charitable contributions to religious groups, education institutions, art organizations, and foundations in 2017; compared to under 7% in foreign aid.
Similarly, economic models, which attempt to place a monetary value on the human life,[74] highlight the inefficiency of all philanthropy not used to combat global poverty, which offers the highest marginal return.
[14] The warm-glow model accounts for such inefficiency because impure altruists may be insensitive to the actual cause, and more sensitive to the act of giving or size of the gift.
"[38] As the body of research has evolved over nearly 30 years — incorporating philosophical,[58] psychological,[51] and physiological insights[76] – it has become a better descriptive model of behavior.
