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Thanks for disentangling this concept. Also, I think a more extensive summary of your working paper (congrats, it's pretty good, for what I've seen so far) would be convenient, with more examples.

Thanks for the kind words, Ramiro. Yes, it's on my to do list both to write more short posts on the key ideas in that paper (in posts) and to revise it to make it easier to follow (it's too ambitious).

Could you add some concrete examples? This sounds promising, but I found it hard to follow in the abstract.

I agree with Michael that concrete examples would be very helpful, even for researchers.  A post should be informative and persuasive, and examples almost always help with that. In this case, examples can also make clear the underlying logic, and where the explanation can be confusing. 

For example, let's think about investing in alternative protein companies as a way to tackle animal welfare. Assume that in a future state where lots more people eat real meat (bad world state), the returns for alt-proteins in that state are low but cost-effectiveness is high. This could be because alt proteins have faced lower rates of adoption (low returns) but it's now easier to persuade meat eaters to switch (search costs are now low since more willing-switchers can be efficiently targetted). The opposite situation is true too. In a good future state with few meat-eaters, alt protein returns are high but cost-effectiveness is low. So this scenario should put us in your table's upper left quadrant (negative correlation btw/ World State and Cost-Effectiveness + negative correlation btw/ Return and Cost-Effectiveness).

This example illustrates how some of your quadrant descriptions may be  confusing or even inappropriate:

  1. "Underweight investment": I agree with this one since to have a greater EV, you want investments with a positive correlation between returns and cost-effectiveness. This isn't true for alt proteins here, so you should avoid them.
  2. "Divest from evil to do good": I don't think this makes sense because alt proteins are not "evil" (but you should avoid them given the scenario).
  3. "Mission leveraging": I was quite confused initially because I was assuming that the comparison is to no investment at all. If so, then investing in alt proteins can lead to an ambiguous impact on volatility (depending on the relative magnitude of return changes versus cost-effectiveness changes). It could in fact be mission hedging (with an improvement in the bad state) if the low returns end up producing more total good because of the state's high cost-effectiveness. However, I eventually realized that the comparison is to a fixed grant within the animal welfare space (although this was never made explicit in the post and may not be what most people would assume). If so, then indeed this is always mission leveraging since a positive correlation between the world state and returns does ensure lower volatility.

So as you can see, an example makes clear where table descriptions may be inappropriate and where a clearer description can be helpful. It also makes more concrete what various correlation signs mean and how to think about them.

Thank you Wayne and Michael for the helpful nudges and encouragement.

I agree that the table at the bottom of the post was at best ambiguous. I have now deleted it from this post, revised it and turned it into this new post with several examples.

This current post then, without the table, remains to make the point that 'mission hedging' is just a subset of 'mission correlated investing'. And that mission correlation research needs to focus on forecasting cost-effectiveness, not whether the world is 'good' or 'bad'.