ABSTRACT Financial disclosure through tax returns is the primary regulatory mechanism for holding nonprofits accountable to donors in the USA. The assumption that donors will make rational decisions using disclosed information when giving to nonprofits is central to this regulation. But what if they rely on mental shortcuts instead? This study examines how donors respond to a third‐party nonprofit rating that is simple, unverified, and based on self‐reported data. Using a five‐year panel dataset covering over a million nonprofit‐year records, we find that even these basic ratings have a significant impact on donation behavior. Donors use ratings via two mental shortcuts. First, ratings increase a nonprofit's salience, boosting donations by 7%. Second, donors process higher ratings as a mental accounting shortcut, giving up to 34% more to the top‐rated nonprofits. The findings suggest the limits of information disclosure alone in making nonprofits accountable to donors.
Ashraf Haque (Mon,) studied this question.