An Introduction to Behavioral Economics: What It Is and Why Your NPO Should Care

by csladmin


If you’re not familiar with the ins and outs of it, behavioral economics can seem like a complicated field. Fortunately, the reality is that behavioral economics is much more straightforward than it may seem. Beyond that, it’s essential for your nonprofit to understand. By understanding behavioral economics (and its impact on your supporters), you can create a more efficient NPO and boost your fundraising efforts as you move into the new year. With this post, we seek to give you an introduction to behavioral economics.

Here’s what you need to know:

An Introduction to Behavioral Economics: What is it?

Behavioral economics is a school of thought born from the marriage of psychology and economics. Used by people across the marketing, sales, giving verticals, and more, behavioral economics provides a framework designed to help you understand why people make decisions, errors, and choices.

Here’s how Psychology Today defines behavioral economics:

“Behavioral economics shows that…people have limited cognitive abilities and a great deal of trouble exercising self-control. People often make choices that bear a mixed relationship to their own preference (happiness). They tend to choose the option that has the greatest immediate appeal at the cost of long-term happiness, such as taking drugs, and overeating. They are profoundly influenced by context, and often have little idea of what they will like next year or even tomorrow. As Daniel Kahneman put this, ‘it seems that traditional economics and behavioral economics are describing two different species.’ The latter shows that we [human beings] are exceptionally inconsistent and fallible.”


Why Your Nonprofit Organization Needs to Understand Behavioral Economics

While behavioral economics has many applications in a wide variety of industries, understanding those implications is especially crucial for NPOs.

Because NPOs are in the business of soliciting donations to create social change, knowing what makes people give (and what drives them away) is critical.

Here’s a breakdown of why it’s so essential for modern NPOs to grasp behavioral economics:

1. Behavioral Economics Influences Your Fundraising Tactics 

Some of the tenants of behavioral economics are pure gold for nonprofits. By understanding why people do what they do, how they give, and what they choose to support financially, NPOs can adjust their fundraising tactics accordingly and arrange them in such a way that ensures the largest possible donations from supporters.

What’s more, understanding the tenants of behavioral economics creates a framework for learning how to engage donors and keep existing supporters coming back for more. This can create a higher level of loyalty and commitment down the road.

2. It Makes Your Organization More Personal 

Understanding things like the fact that donors are more likely to respond to personal asks than they are printed fundraising material is essential for nonprofits. Embedded within the tenants of behavioral economics are several essential personalization suggestions that NPOs would do well to take advantage of.

By knowing how best to market an organization or a mission, and how to connect with consumers that want to support it, NPOs can easily humanize their mission and create a more personalized and dedicated platform, both now and in the future.

3. It Can Prevent You From Making Mistakes 

Not only does understanding behavioral economics help you make smarter decisions when it comes to your fundraising – but it also helps you avoid silly mistakes.

Say you don’t understand behavioral economics at all, which means you don’t know that donors generally follow the crowd and feel obligated to repay favors, or that they thrive on reciprocity. These misunderstandings could easily result in you constructing a fundraising effort that doesn’t take your consumers’ mindsets into account and instead falls short.

If you find yourself in such a situation, it’s easy to imagine how many donations you could miss out on. As such, it’s essential to continue understanding behavioral economics as a way to improve your fundraising, make your interactions with customers more personal, and avoid troublesome mistakes.

4. Knowing About Behavioral Economics Allows You to Build a Better Website 

Behavioral economics doesn’t just affect the donation process; it also plays a role in the way people interact with your organization as a whole. This is especially true on your website.

When you understand things like “paradox of choice” (which states that people are paralyzed by too many options), you can utilize behavioral design to offer a streamlined and simplified user experience and concise content that not only encourages people to donate, but also makes interacting with your NPO online enjoyable.

Understanding Behavioral Economics Improves Your NPO

By understanding behavioral economics, you can improve your fundraising efforts, optimize your website, avoid expensive or catastrophic campaign mistakes, and create a fundraising effort that maintains its upward mobility, both now and in the future.

Contact Creative Science today to get an introduction to Behavioral Economics and how your nonprofit can apply it to your next fundraising campaign!



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