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# Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations

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Science  15 Jun 2007:
Vol. 316, Issue 5831, pp. 1622-1625
DOI: 10.1126/science.1140738

## Abstract

Civil societies function because people pay taxes and make charitable contributions to provide public goods. One possible motive for charitable contributions, called “pure altruism,” is satisfied by increases in the public good no matter the source or intent. Another possible motive, “warm glow,” is only fulfilled by an individual's own voluntary donations. Consistent with pure altruism, we find that even mandatory, tax-like transfers to a charity elicit neural activity in areas linked to reward processing. Moreover, neural responses to the charity's financial gains predict voluntary giving. However, consistent with warm glow, neural activity further increases when people make transfers voluntarily. Both pure altruism and warm-glow motives appear to determine the hedonic consequences of financial transfers to the public good.

Every society needs public goods, but the mechanisms used to fund them vary. For example, taxation and government spending are lower in the United States than in most European countries, but philanthropy is higher (1). To economists, this charitable giving is a puzzle: Money is a good, so why are people willing to give it away? One possible explanation is in terms of a “pure altruism” motive (2). Individuals with such a motive receive satisfaction from increases in a public good, such as the provision of basic services to the needy. This altruistic concern provides a motive to give, but there is also an incentive to keep money for oneself, because the cost of such charity is entirely paid by the giver, whereas the benefits are spread out over all those people who care about the needy. Only those people with a very large pure altruism motive would give voluntarily, and taxation is the normal social solution to the resulting free-riding. Pure altruism implies that people should get some satisfaction even when public goods are supplied through mandatory taxation, because, by this account, people care only about how much of the public good is provided and not about the process by which the transfer occurs. A second possible motive for charitable giving is the sense of agency associated with the act of voluntary giving. This reward from giving has been termed “warm glow” (3, 4). If givers were driven exclusively by the warm-glow motive, they should derive satisfaction from making a voluntary gift, rather than from the increase in the level of the public good itself. On the other hand, taxation should not produce a warm glow, because paying taxes typically does not involve a voluntary choice.

The distinction between pure altruism and warm-glow motives for giving is important for several reasons. First, if giving is motivated by pure altruism, tax-funded government expenditures to provide a public good will reduce private giving, potentially dollar for dollar, as people cut their voluntary contributions in response to these higher taxes (5). There should be no similar effect with warm-glow givers, as their benefit derives from the amount of their gift. Second, a warm-glow motive for altruism provides an argument in favor of policies that encourage voluntary giving, because the warm-glow benefit provides a reward to the giver that exceeds the benefit from paying an equivalent amount in taxes (6).

Neural evidence may help clarify the relative importance of pure altruism and warm-glow motives for charitable giving. Although there is considerable evidence linking neural activity in the ventral striatum and the insulae to the processing of concrete rewards such as money, food, and drugs, less is known about how the brain processes more abstract rewards such as those often provided by public goods. For money, activity in the ventral striatum increases as people anticipate increases in payoffs and when they receive unexpected increases in payoffs (7, 8). Neural responses in the ventral striatum and insulae to information about products and their prices also predict purchase decisions (9). This work supports the theory that these areas provide information on the relative rewards of different outcomes, which serve as an input to decisions about consumption and tradeoffs regarding risk and money (10). Other studies have shown that activity in the ventral striatum and the insulae is correlated with more abstract rewards, including social rewards such as punishing unfair players in sharing games (11), voluntary contributions to charities (12, 13), and decisions to trust others (14, 15). These results motivate our focus on the ventral striatum and the insulae.

To test for the pure altruism and warm-glow motives, we used functional magnetic resonance imaging while subjects played a dictator game. Subjects received $100 and then made decisions about whether or not to give money to a local food bank. They also observed mandatory, tax-like transfers of their money to the food bank (Fig. 1, A and B) (16). The behavioral results in this experiment are consistent with economic theory and are similar to those reported in earlier economic experiments (1719). As shown in Fig. 2A, increases in the amounts going to the charity and decreases in the cost to the giver both increased the likelihood that a voluntary transfer was accepted. Self-reported satisfaction with the transaction followed the same pattern in both the voluntary and the mandatory conditions (Fig. 2B). To investigate the neural activity associated with pure altruism, we used data from the mandatory treatments, which involved exogenous changes in subject and charity payoffs. Contrasts of parameter estimates (Fig. 3) show that activation in very similar areas of the ventral striatum increased with the monetary payoff to both the subject and to the charity. Regression analyses to explain activation data extracted from anatomical regions of interest (ROIs) show the same result (table S4) (16). This is the first evidence we know of demonstrating that mandatory taxation for a good cause can produce activation in specific brain areas that have been tied to concrete, individualistic rewards. The pure altruism model predicts that people who highly value increases in the charity'spayoff, relative to the value they place on getting money for themselves, will be more likely to give. The evidence economists have typically used to support this model has been indirect: Relative values have been inferred from observed decisions (20). Our experiment allowed us to observe brain activation, in areas known to respond to rewards, as we varied the money the subject received and the money the charity received. This provides a direct test of the model: Do across-subject differences in neural responses to subject and charity payoffs predict who is more likely to give to the charity? We are able to address this question out of treatment by using neural responses in those “pure” mandatory conditions where only the subject or only the charity got money (orange and green cells, respectively, in Fig. 1B). These responses potentially serve as an indicator of how much subjects valued money for themselves and for the charity. In fact, regression coefficients show that subjects with larger activation responses to money for themselves were less likely to give to the charity (black columns in Fig. 4A), and subjects with larger activation responses to money for the charity were more likely to give (gray columns in Fig. 4A). To illustrate this relationship graphically, in Fig. 4B we plotted individual acceptance rates against the difference between the neural response to pure charity gains and pure subject gains, pooled over all the regions in Fig. 4A. We also split the sample into “altruists” (n = 10) and “egoists” (n =9) depending on whether they had a larger neural response to the charity's payoff or to their own payoff. Altruists gave money nearly twice as often as egoists (58% versus 31%, P = 0.015). This supports the existence of a purely altruistic motive: The larger a person's neural response to increases in the public good, no matter the source, the more likely they will give voluntarily. How then is voluntary giving different from tax-like transfers? Reported satisfaction ratings were about 10% higher for voluntary than for the mandatory transfers (P <0.01, see Fig. 2B and table S2) (16). The neural evidence shows a similar result; t tests indicate higher activation in the caudate (left, P = 0.015; right, P = 0.004); the right nucleus accumbens (P = 0.01); and the insulae (left, P = 0.063; right, 0.075) in the case of voluntary transfers (table S4) (16). Of course, these results might simply reflect the basic economic principle that adding choices cannot make the decision-maker worse off. This follows because a person who likes the payoffs in a given mandatory transfer can always obtain that same result in the corresponding voluntary condition by accepting the transfer. However, if the subject does not like the proposed transfer, only the voluntary conditions give them the option of rejecting it and keeping the money. Overall, 55% of the voluntary transfers that involved a subject's giving up money to the charity (purple cells in Fig. 1B) were rejected. This led to an increase in the expected payoff to the individual of$13 or 33%, and a decrease in the expected payoff to the charity of $7 or 10%, relative to the mandatory condition. So, although the opportunity for free choice means higher activation in the caudate, the left nucleus accumbens, and the insulae, as well as higher payoffs to the individual, it reduced the level of funding for the public good. An important question, then, is to what degree the observed higher activation comes from the ability to make a choice and to what extent it results from the differences in payoffs from that choice. We looked again at the differences in activation and satisfaction ratings between the mandatory and voluntary conditions, but this time controlling for the consequences of rejection by replacing those payoff changes with$0. The voluntary-mandatory activation difference remained reliable for the caudate (left, P = 0.023; right, P = 0.011) and the right nucleus accumbens (P = 0.042), even after we controlled for payoffs (table S6) (16). Also, reported satisfaction was higher for voluntary than for mandatory transfers after controlling for payoffs (P < 0.065 for the complete design; P <0.001 using the cells involving tradeoffs, purple in Fig. 1B). The pure altruism motive for giving, along with the story about adding choices described above, would imply that there should be no mandatory-voluntary differences after controlling for the payoff effects. Thus, our results suggest that both the increased payoffs and the ability to choose lead to increased neural activity and satisfaction.

Previous results have demonstrated that activity in the areas we examined is larger when reward can be linked to one's own actions rather than to extraneous factors (2124). Our results extend these findings about the role of agency in reward-processing to the important situation involving a choice between the subject'sprivate payoff and the public good. What is not clear from earlier reports is whether agency-linked modulation of reward activity is actually associated with a modulation of hedonic value. Our study shows that neural activity in the caudate and right nucleus accumbens, as well as subjective satisfaction, is larger in the voluntary than in the mandatory situation. The fact that this effect persists even after controlling for payoffs supports the warm-glow theory of giving (3).

In summary, we find that three very different things—monetary payoffs to oneself, observing a charity get money, and a warm-glow effect related to free choice—all activate similar neural substrates. This result supports arguments for a common “neural currency” of reward (2529) and shows that this model can be applied not just to choice over money, risk, and private consumption goods, but also to more abstract policy choices involving taxation and charitable giving (12). Our results are also important for understanding why people give money to charitable organizations. First, these transfers are associated with neural activation similar to that which comes from receiving money for oneself. The fact that mandatory transfers to a charity elicit activity in reward-related areas suggests that even mandatory taxation can produce satisfaction for taxpayers. A better understanding of the conditions under which taxation elicits “neural rewards” could prove useful for evaluating the desirability of different tax policies. Second, we show that the opportunity for free choice is associated with increased activity in regions implicated in processing rewards, as well as with higher reported satisfaction. Furthermore, this effect is not entirely accounted for by increased payoffs. In the context of charitable giving, this choice-related benefit is consistent with a warm-glow motive for giving.

In combination, these results suggest that both pure altruism and warm glow are important motives for charitable giving. Future work may reveal whether the free-choice effect found here extends to other situations, and under which conditions taxation elicits “neural” rewards. A related question is whether people who vote for a tax to provide a public good get a warm-glow benefit. Last, public goods by their very nature are seldom traded in markets, and so we cannot observe the prices people will pay and then use these to measure value. The finding that neural activity predicts voluntary donations suggests that such activity could eventually help measure values and determine optimal levels of public goods.

Supporting Online Material

Materials and Methods

Fig. S1

Tables S1 to S7

References

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