Income, charitable giving, and perception bias

Abstract

This paper analyses income and charitable giving from the perspective of perception bias. We show that perception bias affects charitable giving through its effects on warm glow, while inequality aversion counteracts these effects. Donors’ perception bias regarding a recipient’s situation does not necessarily decrease their charitable giving. Specifically, perception bias regarding the recipients’ effort and life shock decreases donors’ charitable giving. Perception bias regarding the recipients’ ability decreases donors’ giving to charities designed to help low-ability recipients but increases their giving to charities designed to help high-ability recipients. We also show that perception bias increases with donors’ income. Fundraising professionals shall allocate more efforts to those who do not care about inequality that much when correcting the donors’ perception bias; focus their efforts on correcting the donors’ perception bias, especially for rich donors, when raising money for charities with low-ability recipients; but increase donors’ perception bias regarding the recipients’ ability when raising money for charities with high-ability recipients.