Epistemic status: I don't actually know whether EA is over-invested in crypto. This post is intended to spark discussion in the topic.
This is a short post on:
- The diminishing marginal utility of money in terms of giving opportunities,
- the implications on investment strategies for EA money,
- and a question about our best guesses at the actual diminishing returns on investment in EA.
(This post is inspired by crypto, and in practice is about crypto, but isn't necessarily about crypto)
I've had a few friends ask me how much money they should invest in crypto. My answer is that this depends on two things. One, is the hard question of the EV (expected value) of the bet. But the second thing is, even given a positive EV bet in terms of money, it might not be positive in terms of utility (to the individual).
This is because of the diminishing marginal utility of money. Imagine for example a "Person A" who is skint - their quality of life is relatively low and even a small amount of money would substantially increase their utility. Then, imagine a "Person B" with a $1M net wealth - they probably have a pretty good life. Lastly, imagine a "Person C" with a $2M net wealth. How much impact did that extra $1M make in terms of quality life? Not nearly as much as the first $1M.
On average, each additional dollar you get has less impact than the last on your quality of life (although the curve might have steps in it, where you get enough for a car or a house etc.)
This has an impact on the kinds of bets you can (as a selfish actor) rationally take. For example, let's say Person B has the opportunity to take the following bet:
- Invest $1,000,000 to get:
- a 50% chance at gaining an extra $1,100,000, or
- a 50% chance at losing the $1,000,000.
We can see the EV of this is $100,000. However, Person B should not take the bet - the EU (expected utility) is probably negative, because the -$1M outcome is much more negative in utility than the +$1.1M is positive.
This is pretty intuitive for individuals, but the same thing is true for the EA movement as a whole - just at much bigger amounts of money.
Let's say EA has the opportunity to take a positive EV bet with 50% of all wealth pledged to EA (Say $20B?). At what level of payoff is that bet worth it? Lets say the bet is a 50/50 triple-or-nothing bet. So, either EA ends up with half its money, or ends up with double. I'd guess (based on not much) that right now losing 50% of EA's money is more negative than doubling EA's money is positive. What about 4x or 10x returns?
This isn't a theoretical question. EA already has a lot of money held in crypto, both through Sam-Bankman Fried's holdings and through many individual EAs' portfolios. Crypto is a notoriously high-risk / high-reward asset class and holding wealth in crypto for patient philanthropy is implicitly taking a high-risk bet. We should be explicit about whether we think that's a good idea or not.
I certainly don't know the answers, but I am interested to hear people's guesses on the actual "$$ to utility curve" for EA's altruistic giving opportunities. I'm also interested in how much EA money is currently held in high-risk investments, especially crypto.