A Psychological Perspective on Charitable Giving and Monetary Donations: The Role of Affect

Abstract

In this chapter, we discuss the psychological aspects of financial decisions related to charitable giving. We argue that affect plays a central role in driving charitable decisions. In our selective review, we explore two psychological phenomena that are based on affect: compassion fade and pseudoinefficacy. The first phenomenon may be regarded as a cognitive bias that predisposes decision makers to act more compassionately toward a single individual compared to a large number of anonymous people due to the effect of scope insensitivity. The second phenomenon-pseudoinefficacy-describes and explains why people deter from helping some people just because there are others they cannot help. However, there are some possible differences between fast and slow pseudoinefficacy on which we elaborate from the perspective of “dual-process theories” of thinking. Finally, we show that debiasing techniques, such as nudges and decision aids, may be employed to promote slow thinking and mitigate biases in charitable giving.