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Opting into “Opting Out” of charitable giving

Michael Sanders

A recent poll by Workplace Giving, a payroll giving company, indicated that of 1000 respondents, 68% would favour the introduction of an automatic-enrolment system for payroll-giving. This kind of system would make the default for all workers in participating firms to be enrolled in a the scheme, giving to a given charity at a given level – they could then, if they so wished, opt-out of the scheme, or change the amount they give, and/or the charity to which they are giving (64% of respondents indicated a preference for having a hand in choosing the charity in the first place).

Why should this be the case? Only a minority of workers (only 6% of workers in participating firms, 2.4% of all workers)[1], actually give through payroll giving at the moment. While it is natural to suspect some selection bias in the answers to these questions, the magnitude of the difference suggests that at least some respondents who answered positively about the automatic enrolment system are not currently enrolled in payroll giving schemes in their firms.

If they are so keen to give to charity that they would favour and opt-out arrangement, why do they simply not enrol themselves in existing schemes, or set up a direct debit of their own accord? Work from across the field of Behavioural Economics appears to suggest some answers.

The first, and most obvious suggestion, is that individuals have a self-control problem, and continue to put off the act of enrolling. In these cases, a self-aware individual may prefer a “commitment device” such as an automatic-enrolment system, which compels (or in this case forces) them to partake. Evidence from the pensions literature in the united states suggests that automatic enrolment can have powerful effects on individuals’ behaviour in overcoming their self-control problems[2].

Respondents to the survey may also be demonstrating systematic overconfidence. Although the existence of this phenomenon is observed in previous research, for example finding that 93% of all drivers believe they are above the median ability[3], it is particularly interesting when combined with self-control problems. Despite previous evidence to the contrary, for example not yet having signed up to Payroll Giving, individuals strongly believe that they are more likely to overcome their self-control issues in the future. Given their expectation that they will sign up to payroll giving…tomorrow, and that their colleagues will not, automatic enrolment will make no difference to them in the long run, but will have a larger impact on others’ giving.

Finally, the institution of an opt-out is likely to induce more homogeneity of charity choice (among those passively remaining in the scheme), compared with softer policies such as “active enrolment”, whereby individuals are compelled to make a decision for themselves (often through a mandatory form)[4]. If the respondents were motivated by a particular cause (heart disease, for example), and believe themselves a more active participant in decision making, a prescriptive policy may be better for them, albeit at the cost of social welfare.

These phenomena, and others like them, may pose significant obstacles to the Government’s plan to induce a ‘step change’ in giving in the UK – something which, as this blog has previously discussed, will be very hard to do. They also point to a more nuanced problem with giving; instituting auto-enrolment may increase the level of giving, but if workers are heterogeneous in their charity preferences, it may decrease social welfare, or be a second best policy compared to a softer intervention. Although the results of this poll are positive for those who support payroll giving schemes, it is clear that more research must take place before we are able to accurately predict its effects.


[1] Potter & Scales (2008) “Review of Payroll Giving”  Strategy Complete Ltd. Commissioned by Institute of Fundraising

[2] Choi,  Laibson, Madrian, Metrick (2006)  “Saving for Retirement on the Path of Least Resistance”. Behavioral Public FinanceToward a New Agenda. Ed McCaffrey and Joel Slemrod, eds. New York: Russell Sage Foundation pp304-51.

[3] Svenson (1981): “Are we all less risky and more skilful than our fellow drivers?” Acta Psychologica 47: 143-148.

[4] Carroll,  Choi, Laibson, Madrian, & Andrew Metrick (Forthcoming) “Optimal Defaults and Active Decisions.” Quarterly Journal of Economics

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