What’s the Difference in Effectiveness Between Charities?

A misconception about charity effectiveness and its effect on giving.

By Stefan Schubert, Ph.D., and Lucius Caviola, Ph.D..

Some charities are more effective than others. They manage to do more good—for instance, to save more lives, if that’s what they’re aiming for—than other charities do with the same amount of money. As a donor, you achieve more good if you donate to the most effective charities.

But how large are these differences in effectiveness? How much more effective are the most effective charities compared with the typical charity? What do you think? Are the most effective charities maybe 10% more effective than the typical charity? Or 50% more effective? Or three times more effective? Or is the difference larger still?

There are several reasons that this question is important. If the difference in effectiveness is small, then it doesn’t matter so much what charity you donate to. They all have fairly similar levels of impact anyway. So it’s not too important to invest resources in finding the most effective charities. But if the difference in effectiveness is large, then it’s very important to identify the most effective charities, and to donate to them.

Similarly, the difference in effectiveness can inform us about how the charity sector is doing. If the most effective charities are much more effective than the typical charity, then most charities could do a lot better than they’re currently doing. It would mean that much of charity should be rethought. But if the most effective charities are just a bit more effective than the typical charity, then we don’t have reason to infer that. Then the typical charity looks a lot better.

Expert vs lay beliefs

In a recent paper published in Judgment and Decision Making, we set out to study beliefs about differences in charity effectiveness, together with our co-authors Elliot Teperman, David Moss, Spencer Greenberg, and Nadira Faber. Specifically, we asked participants how much more effective the most effective charities helping the global poor are, compared with the average such charity. We presented this question to three groups: to lay people, to effective altruists (who are committed to giving to the most effective charities), and to experts on global poverty charities. We found striking differences. Lay people thought that the most effective charities are around 1.5-2x more effective than the average charity (median estimate; this result was replicated, using slightly different formulations of the question). Effective altruists rather estimated that the difference is 50x. And experts thought that the difference is no less than 100x. This expert estimate is in line with studies of differences in effectiveness of different interventions (e.g., different medical treatments) to help the global poor, as measured by disability-adjusted life years saved per $1,000 (see graph).

So most people think that the differences in effectiveness between charities helping the global poor are small, but actually, they are very large, according to our best expert-based estimates. (And if we compare charities working on different causes—including charities benefiting people in the developed world—then the differences in effectiveness are likely even greater.) That means that people underestimate the importance of prioritizing the most effective charities. They believe that donating to the average charity, rather than the most effective charity, makes you lose a third to half of the impact that you could have had. But actually, it can make you lose at least 99% of your impact.

The effect of information

In the light of these results, it’s natural to ask if people change their behavior when they are informed about the large differences in effectiveness. People are generally not too motivated to donate to the most effective charities. And they often don’t do much research to find the most effective charities. Might that change if they learnt how large the difference in effectiveness between the most effective and the average charity is? In other words, is the underestimation of this difference part of the explanation of why people donate ineffectively (as they tend to do)?

In the last study of the paper, we looked at this issue. We presented participants with two hypothetical donation options. Either they could donate $100 to a highly effective charity, or they could donate $60 to that charity, and $40 to a less effective charity. We found that people were more inclined to give the whole $100 to the highly effective charity when they were informed that the difference in effectiveness between the charities is 100x, than when they were informed that the difference is 1.5x, or when no information about the difference was given. Since giving the full amount to the highly effective charity is the most effective option, this means that yes, informing participants of the true difference in effectiveness (as estimated by experts) did push them in a more effective direction. However, it’s notable that many continued splitting their donations between the two charities even when informed about the true difference in effectiveness. As previous research has shown, people seem to have a strong preference for splitting their donations. Thus, while people’s underestimation of the differences in effectiveness between charities is likely one reason why they donate ineffectively, it’s not the only reason, and dispelling that misconception can only make so much difference. As we’ve shown elsewhere, there are many obstacles to effective giving.

The inefficient charity market

Why, then, are the differences in effectiveness between so charities so large? That’s because the “market” for charities isn’t efficient, unlike the stock market, and unlike the market for consumer goods. We already saw that people don’t find giving effectively a priority. That means that ineffective charities aren’t incentivized to improve. There is little market pressure toward effectiveness. As a result, most charities are much less effective than they could be. Only a small number of charities are effectiveness-minded, and they strongly outperform the rest.

The situation is very different from that on the market for consumer goods. Consumers are normally highly motivated to get the best value for money. And they are willing to invest time in finding the best options. Therefore, ineffective companies are highly incentivized to improve. If they don’t, they go out of business. This is why the difference in effectiveness between companies isn’t that large. But since there is no corresponding mechanism on the charity “market”, ineffective charities continue in their usual fashion.

One lesson from this is that when you’re searching for goods and services that give the best value for money, you aren’t just helping yourself. You’re also helping all other consumers, by forcing companies to provide better and cheaper products. Though the effects of any one individual consumer’s decisions are of course tiny, the aggregate effects are vast. Thanks to that, consumers will usually find reasonably good products even if they don’t invest a lot of time in finding them—since most products on the market are pretty good (though it varies with industry).

Conversely, the fact that most donors aren’t too interested in effectiveness makes it harder for other donors to donate effectively. Because of the lack of interest in effectiveness, charities aren’t pushed to become more effective. As a result, uninformed donors aren’t helped by market forces, the way uninformed consumers are. They run a great risk choosing an ineffective charity, since there are many ineffective charities out there.

The growing interest in effective charity

Recent years have, however, seen an increased interest in effective charity. The growing movement of effective altruists has set up research organizations identifying the most effective charities. For instance, GiveWell recommends effective charities that help the global poor, and Animal Charity Evaluators recommends effective charities that advance animal welfare. These organizations make life much easier for people who want to donate to the most effective charities.

If this approach to charity became more popular, then the charity market would start to become more similar to the market for consumer goods. The average charity would gradually become more effective, in response to donors’ demand for effectiveness. And then the difference in effectiveness between charities would start to decline.

But for now, it is larger than most people think.