- Reaction from the streamer. Donations get their attention and will show (or read aloud) a message from the donor. It could be a joke, or just kind words of support.

- Interaction. Streamers will often set rewards for donations above $X. This could be something like "choose the next hero I play in Overwatch", or, as many Tabletop streamers do, "Player of your choice automatically rolls a Natural 20". These can also often turn into glutton for punishment rewards, like doing shots or eating hot peppers. Sometimes donations can trigger sound effects, e.g. a loud roar during a tense moment in a horror game.

- Competition. Someone else mentioned the "telethon" mentality of wanting to be the highest donor, and that very much applies. Streamers will often include on their channel the rankings of their top supporters.

- Milestones. Streamers will often set goals of how much they want to raise over the course of a day or month. This could be something like "help me afford a new CPU" or just "Keep the show going". If they hit it, they promise things like game giveaways, 24 hour streams, dyeing their hair a crazy color, etc.

The traditional sense of paying someone cash for something often happens in parallel: you give something and you immediately get something. I think the mentality (or, at least my mentality) with streamers and tipping is a bit different: after you've received something (e.g. entertainment for X duration), _then_ you give something (a tip). Tipping someone $100 at any point might not make total sense in the moment to someone else observing, but tipping someone $100 for e.g. the last 6 months of free entertainment makes a lot of sense to the tipper. Sure, you could get away with not tipping and make that entertainment truly free, but you also want to support those who are creating it and encourage them to make more. After all, you pay for other entertainment, and often a large tip every once in a while still evens out to (much) less than you'd pay otherwise.

Beyond that, wasn't there kind of a scandal a few years back where people would donate huge amounts to twitch streamers to make a big splash, and then cancel their donations so it didn't cost anything?

In terms of the scandal, yes, that was and still is a thing. Generally called "chargebacks", if a donor cancels the card and reports it as fraudulent, they have to pay nothing, and the streamer often has to pay a processing fee.

Two stories there: I know a streamer who pissed off one of his moderators, and the mod decided to donate to the channel repeatedly in small amounts, and cancel all of them. He had to pay a $20 fee for each one, it ended up costing hundreds.

I also had a buddy who was raising money for the charity Extra Life earlier this year, who had someone drop a donation of over $1k. The next week it was charged back, assumably costing the charity money. Some people are just not great people.

I also won't subscribe to any channels (except with the free Twitch Prime sub) because I don't watch any one channel consistently enough to justify it. But if I am watching one channel a lot some month why not donate $5?

Spending $100-500 for some entertainment is actually reasonable and not at all baffling.

If you feel they provide you with $500 in entertainment and you have a spare $500, then it makes sense.

That's like asking "why would you go to a casino when you know casinos make lots of money?"

If you're watching Larry David's shows the business transaction has already taken place. Larry David doesn't stream his shows for free and give you the opportunity to give him donations in exchange and then thank donors during the episode.

I understand the busker metaphor, but the $100/$500 donations we hear about most often are to successful streamers, so it's more like throwing $500 at Axel Rose. That's the bit I find interesting.

Such donations strike me as unusually altruistic for the demographic involved, in a way that we don't see en masse in other public online venues (such as on YouTube, donating to open source, Instagram, bloggers, etc.) I'm quite interested in learning more about the psychology around that because I think other arenas deserve it too.

But not that odd: I’ve backed people on patreon because I liked what they do and wanted to reward them - even though they were already making good money on it - and then never actually accessed the rewards. So I do get it.

The donations then become something more like buying Girl Scout cookies, or a painting from a craft fair.

It's not the most efficient use of your dollar for a product, it's patronage of someone in your community.

Or, less flippantly, for some people this is literally their only entertainment.. They watch every day, all the time..

At some point, dollar-per-hour evens out when compared to going to the movies or paying for other forms of entertainment.

My theory is that its anthropological, people want to belong to the group. The isolation of being behind a computer ironically amplifies the phenomenon, people become more desparate to connect and the only outlet they have is to donate.

Finally there is the rabid success of the female streamers, many of whom wear low cut shirts and exhibit flirty behavior. While there are many talented female gamers who deserve their place in the twitch spotlight, there can be no denying that a portion of the demographic caters specifically to specific male inclinations...

It actually seems better for the performers than stripping in a club - they don't have to risk contact with patrons, more control of working conditions and I assume they get to keep a lot more of their income.