Guest blog article by Simona Weinglass

I’m an old-school journalist who recently decided to pivot into high-tech. I work in high-tech marketing as well as print and broadcast media covering politics, business culture and everything in between.

This post originally appeared in Geektime and is reprinted with permission. You can read the original article here.

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Russell Crowe playing John Nash, the originator of game theory, in ‘A Beautiful Mind.” Photo Credit: The movie’s trailer, YouTube

Based on a decade of research at Berkeley and NYU, this startup uses the science of why people give to help charities raise money online

In the 2001 movie A Beautiful Mind, about the life of Nobel-Prize winning economist John Nash, there is a scene in which the young Nash goes to a bar with several university friends.

In walk five women, including a stunning blonde, whom all the men immediately begin to fight over.

“In competition, individual ambition serves the common good,” one of the friends says, quoting Adam Smith, the father of modern economics.

Nash has a flash of insight: “Adam Smith needs revision, he says, ‘if we all go for the blonde, we block each other. Not a single one of us is going to get her. So then we go for her friends, but they will all give us the cold shoulder, because nobody likes to be second choice. Well, what if no one goes for the blonde? We don’t get in each other’s way, and we don’t insult the other girls. That’s the only way to win.’”

Nash goes on, “Adam Smith said the best result comes from everyone in the group doing what’s best for himself. That’s incomplete. Because the best result will come from everyone in the group doing what’s best for himself andthe group.”

“I love that movie,” says Arnon Shafir, the CEO and co-founder of give2gether, a game theory based fundraising platform.

Why is this movie important?

Shafir explains that this scene had a profound effect on his life and career. Aside from being overly simplistic (Hello? don’t the women have a say in the matter?) as well as fictional (“I know John Nash and he told me it never happened,” game theorist Ziv Hellman told Geektime), the scene illustrates two very important truths.

First, this story gets across the essence of game theory, the idea that “there are two or more players, who can make decisions,” according to Ziv Hellman, a lecturer at Bar Ilan University. “The outcome is determined not by what one person alone does but by what all the players choose to do. And there is an outcome in the end. Some people gain and others might gain or lose. And it’s important to consider what the other players might be doing when you’re making your decision.”

Second, the story makes the psychological point that most people don’t like to be someone’s second choice. If we feel important, like the “blonde” in the movie scene, we will respond very differently than if we feel we are not really pivotal to someone else’s well being.

It was these two insights that led to the development of give2gether, a SaaS platform for nonprofits that claims it can triple the level of a charity’s online fundraising by employing game theory recommendations. give2gether’s other co-founder, Professor Shachar Kariv, is the chairman of the Economics Department at UC Berkeley and director of theUC Berkeley Experimental Social Science Laboratory (X-lab), where subjects come in and engage in game theory games, while researchers observe what they do empirically – not just in theory.

What Kariv found is that donors want to experience the “warm glow” of knowing their contribution was pivotal in the success of a fundraising campaign. Thus, if an online campaign does not cap the amount you are allowed to give (say $100), and if the duration of the campaign is too long, a lot of regular Joes and Janes will be left apathetic.

“Let’s say you’re sitting next to Mark Zuckerberg at a fundraising event,” Shafir told Geektime. “Even if you are very generous, you’ll probably give less money.”

This is because you assume that Zuckerberg will write a $50,000 or $100,000 check. It makes you feel like your own paltry contribution won’t matter either way. By capping the amount a single donor can give to a campaign, give2gether actually increases the overall amount raised.  Going back to the movie scene, the big donor is like the blonde who diverts attention from her female friends. By removing the big donor from consideration, the other donors feel more of a “warm glow” and end up giving more.

“It sounds counterintuitive,” says Shafir, “but if it doesn’t sound counterintuitive, it’s not a good game theory recommendation.”

Another thing give2gether does is make campaigns conditional, meaning if the campaign doesn’t reach its fundraising target, the money will be returned or channeled to a different cause.

“The first time we presented, people said, hey good luck with that. You’re meshugenes. Who would say no to money? But 100 percent of our conditional, all-or-nothing campaigns have succeeded.”

How does it work?

Give2gether works as an SaaS online campaign platform. A charity that wants to work with give2gether doesn’t really need to change their messaging, marketing strategy or website design, although the company does offer a list of best practices, like keeping slogans short, using photos with powerful captions and including calls to action. But give2gether’s secret sauce is its algorithms which determine the parameters of each specific charity and campaign, like how much to ask for and how long the campaign should last.

Cofounders Arnon Shafir and Shachar Kariv met several decades ago when they were soldiers in Israel’s 8200 intelligence unit and both went on to study economics at Tel Aviv University. Their paths crossed again in 2007 after Kariv had a meeting with the chief scientist of Yahoo, who was very excited by Kariv’s UC Berkeley research into charitable giving.

“If you guys can do what you say you can do, it will change the Internet,” the Yahoo scientist reportedly said. Kariv called his buddy Shafir, a high tech product developer, and the next week he was on a plane to California.

“Eight years ago my father died of lung cancer,” he explained. “We tried to get him some rare medical treatments, but he eventually succumbed.”

At the time, says Shafir, there was no crowdfunding and there was no way for a charity like the Israel Cancer Association to connect the patients who needed money to the people who wanted to help.

“Is this as good as it gets?” Shafir had thought to himself.

That’s why when he got the phone call from Kariv, Shafir felt it was the hand of fate, or at least “governing dynamics,” the term used in A Beautiful Mind to describe the rules of the universe according to game theory.

“The combination of game theory and donor preferences could help nonprofits understand, reveal and harness the philanthropic preferences of real people, people who otherwise wouldn’t participate in a campaign,” he explained.

Give2gether, whose commercial launch took place in 2011, is for profit and is currently running at a profit, says Shafir. The company has “hundreds” of clients, who pay  a few hundred to a few thousand dollars a month, as well as 2-5 percent of whatever they raise. This seems like a good deal, as the average cost to raise $1 is currently about 20 cents for philanthropies in the United States.

Give2gether’s clients include the Toronto Jewish Federation, the Boston Jewish Federation, Hadassah and a plethora of animal welfare groups including the British Columbia Society for the Protection of Animals.

Shafir says the U.S. market for charitable giving is $320 billion dollars a year, and online fundraising alone is $20 billion.

“Ninety-two percent of U.S. households give to charity. It’s not a question of if, but to whom.”

Give2gether has raised about $2 million so far in private funding. About 3 percent of the company is owned by New York University, where some of the applied game theory research took place. The cofounders of Israeli website builder Wix are also among give2gether’s seed funders.

“Their CTO, Giora Kaplan, once said, ‘I don’t mind how big an exit give2gether has. It could be 5x or 10x or 20x. I know for a fact that every single dollar invested in the company goes directly to a charitable cause the next day,’” Shafir regales.

Shafir says that in its investor reports, instead of just reporting growth, the company will write that, “Last year, we helped save thousands of dogs and cats. We funded more than 20 years of cancer-related research. We helped send more than 250 special needs kids to camp.”

“Who else can say that? It’s really rewarding.”

Shafir says that software for online fundraising is big business and mentions Blackbaud as one of their competitors. “It’s Goliath, a $2 billion company.” However Blackbaud and related solutions are the second generation of online fundraising software, he says. “It works, but it’s nothing close to what we do.”

Is game theory a form of manipulation?

While give2gether sounds very impressive, there is something a touch unsettling about their methods. Let’s say Jane Doe was planning to give $100 to the local humane society and due to the effectiveness of give2gether’s platform, the way it made her feel special and important, she gave $200 instead. What if she could not really afford it? But in the end, it’s okay, because it’s for a good cause. But what if someone else used these methods, say an online gambling site, to get people to part with more of their money? Would that be ethical?

“If you have a website, and these are the rules, that’s not manipulation. You’re just setting the ground rules in the best way possible,” explains lecturer Ziv Hellman. For instance, he says, if it is proven that people will eat leaner foods if they are at the top of a lunch counter, is it manipulation to put them there?

“As long as the rules are explained, adults make their own choices.”

But going back to the example in the bar with the blonde woman, isn’t it manipulative to make the brunette friend think she was someone’s first choice when she wasn’t?

“That’s different,” says Hellman, “that’s called lying.”

Shafir says this ethical issue actually came up in real life.

“Two of the biggest companies in the world approached us in the last year to find out more about the game theory for their own businesses, and we turned them down,” he said.

Did their names start with G or F?

“I can’t say,” Shafir responds, laughing, but he does say that “our vision, besides building a billion dollar company and raising tens of millions for charity, is to apply this technology to modern crowdfunding for investments, for business, real estate or whatever. If I close my eyes and think five years down the road, that’s something that can excite us.”

However, says Shafir, give2gether will reject any proposal whose heart is not in the right place.

“We believe good karma goes together with good business.”

About Simona Weinglass

I’m an old-school journalist who recently decided to pivot into high-tech. I work in high-tech marketing as well as print and broadcast media covering politics, business culture and everything in between.

This post originally appeared in Geektime and is reprinted with permission. You can read the original article here.