Under traditional economic models, people are predicted to lie when it is rewarding and undetectable.
Real life is a bit messier. Some people try to be honest, and this gives the opportunity for liars to gain an even larger advantage over their competition.
For charities, this dynamic plays out brutally due to two key issues.
Donors rely on charities' claims, and detecting lies from charities is extremely difficult.
For example, a charity might claim that your donation gave 100 homeless people sandwiches. But how could you detect if this is a lie?
As a donor, you never get to see the sandwiches, or the homeless people being fed. This means that if the charity lied, you won't know that you've been deceived, and you'll likely keep trusting them, unaware that the claimed impact never happened.
In contrast, if a business lies about giving you a sandwich you paid for, you'd immediately notice and stop shopping there.
Overall, donors are among the easiest customers to deceive, since they don't get to see the product or service they are paying for.
Donors pay charities based on their claimed impact, not their actual impact. Lying allows charities to achieve impact metrics that are higher than what is physically possible, making lying a dominant strategy.
Worse, it's cheap (basically free) for a charity to claim impact, but expensive to actually have impact. From a business perspective, lying is not just tempting, it's the optimal business practice.
As a whole, charities that publish impact metrics are structurally incentivized to exaggerate. This means that in many cases the metrics are marketing material rather than objective analysis.
For this reason and many others, we recommend donating to charities based on strategies, not impact metrics.
To receive updates when we publish new articles, subscribe to our newsletter below for free.