Crypto charities can use ‘gambler’s fallacy’ to raise big donations – study
A group of academic researchers from the United States recently published a study that examines how “gambler's error” affects cryptocurrency donations. Their findings suggest that organizations that accept crypto donations can take advantage of the market's timing.
At its core, the team's work explores the idea that people misinterpret certain signs of patterns when it comes to finances in general. Based on known market conditions, charities that understand the desire of crypto holders to hold or move assets may be able to optimize their strategies to collect larger donations.
According to the paper:
“Our findings support actionable recommendations for charities to design more intentional fundraising campaigns that are cost- and time-efficient for cryptocurrencies. Considering recent changes in cryptocurrency prices and emphasizing the urgency to donate, charities can design more effective strategies to engage cryptocurrency donors.” You can.
The team tested their premise on an online fundraising platform with cryptocurrency donations for 117 campaigns. They also conducted a controlled online experiment studying contextual characteristics of crypto donation.
After careful analysis, the team determined that market activity is directly related to donation “activation” (first-time donations) and donation rates.
According to the paper, the online experiment, expanding on empirical analysis, showed that “donor decisions conform to the gambler's fallacy heuristic in response to recent changes in asset prices.”
The gambler's fallacy, commonly called the Monte Carlo fallacy, is the tendency for people to misinterpret statistically insignificant historical events, such as the flip of a coin, as predictions of future odds.
As an example of a gambler's fallacy, if a person flips a coin 10,000 times in a row and it lands on heads, an observer might think that the next coin is more likely to land on tails, as the video above shows. “It's time,” he explains.
In reality, the odds of a coin landing on heads or tails are always exactly one-in-two regardless of historical results.
During the study, the researchers determined that participants were more likely to be motivated to donate after experiencing a decline in property values. This is because donors feel more confident that the value of their donation could be inflated due to a gambling error. “We also find that participants' belief in the error of the gambler increases when they are faced with an urgent donation appeal,” the paper continued.
Finally, the paper concludes that these insights can be used as empirical evidence in the decision-making process for organizations and individuals who accept cryptocurrency donations.
Related: Blockchain in Charity, Explained
