Hitting the Target but Missing the Point: How Donors Use Cost Information

Abstract Charities often advertise the cost of a given impact (e.g., $5 provides a meal). Though often intended to demonstrate cost-effectiveness, we find that donors also use the cost as a target. Therefore, the impact cost can be too low, reducing donation amounts, or too high, deterring donors from donating altogether. We propose that, whenever donors have a reference point for a reasonable donation, the revenue-maximizing impact cost is at or just below this reference point, due to loss aversion. We examined these predictions across two online studies (N = 1,711) and one field experiment conducted within a US non-profit’s mailing appeal (N = 141,161). Study 1 demonstrates that donors target impact costs; participants report giving more when the cost of a mosquito net is higher. Study 2, the field experiment, reveals the pernicious effect of setting a target too high. Study 3 tests how the reference donation amount informs the revenue-maximizing impact cost. Supplemental studies robustly support our optimal-target recommendation, while demonstrating that cost information is ubiquitous and theoretically distinct from other types of targets. Together, these results shed light on an often-unintended side-effect of providing cost information, with practical insight on how to leverage it for higher donation revenue.