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Have there ever been any efforts to try to set up EA-oriented funding organisations that focus on investing donations in such a way as to fund high-utility projects in very suitable states of the world? They could be pure investment vehicles that have high expected utility, but that lose all their money by some point in time in the modal case.
The idea would be something like this:
For a certain amount of dollars, to maximise utility, to first order, one has to decide how much to spend on which causes and how to distribute the spending over time.
However, with some effort, one could find investments that pay off conditionally on states of the world where specific interventions might have very high utility. Some super naive examples would be a long-dated option structure that pays off if the price for wheat explodes, or a CDS that pays off if JP Morgan collapses. This would then allow organisations to intervene through targeted measures, for example, food donations.
This is similar to the concept of a “tail hedge” - an investment that pays off massively when other investments do poorly, that is when the marginal utility of owning an additional dollar is very high.
Usually, one would expect such investments to carry negatively, that is, to be costly over time possibly even with negative unconditional expected returns. However, if an EA utility function is sufficiently different from a typical market participant, this need not be the case, even in dollar terms (?).
Clearly, the arguments here would have to be made a lot more rigorous and quantitative to see whether this might be attractive at all. I’d be interested in any references etc.
How do people think about investing vs donating over time in practice?
When coupling investment and optimal donation problems, there is an apparent paradox if we consider: * expected utility (EU) is pretty much linear in donations * risk aversion with respect to own impact is non-altruistic --> one should allocate everything to the best donation opportunity
* if there are positive EV (above risk free rate or above market beta or similar) investment opportunities one can invest and therefore increase the EU because EV translates linearly into EU --> one should go all in on the best investment --> seemingly there is a moral obligation to invest imprudently in order to donate with max EU
This is clearly wrong and suspiciously close to SBF-type (double+epsilon)-or-nothing scenarios.
The way I currently think about is that a one-period problem is a very poor approximation (eg if I hit an absorbing barrier down the line the outcome is bad in EU terms, my future income stream is time-varying and uncertain and a function of my liquidity), therefore risk averse investing is still optimal, even when risk averse donating is not justified. Additionally (and hand-wavingly), I think that somewhat risk averse & diversified donations are also good because of beyond-quantifiable and moral uncertainty, diversification generating new future donation opportunities, multi-period-ness, and game theory around adverse selection & because it's reasonable not to be completely altruistic.
What are other good ways to think about the coupled donation and investment problem?
Is there a running list of small, impactful & very capacity-constrained giving opportunities somewhere?
Have there ever been any efforts to try to set up EA-oriented funding organisations that focus on investing donations in such a way as to fund high-utility projects in very suitable states of the world? They could be pure investment vehicles that have high expected utility, but that lose all their money by some point in time in the modal case.
The idea would be something like this:
For a certain amount of dollars, to maximise utility, to first order, one has to decide how much to spend on which causes and how to distribute the spending over time.
However, with some effort, one could find investments that pay off conditionally on states of the world where specific interventions might have very high utility. Some super naive examples would be a long-dated option structure that pays off if the price for wheat explodes, or a CDS that pays off if JP Morgan collapses. This would then allow organisations to intervene through targeted measures, for example, food donations.
This is similar to the concept of a “tail hedge” - an investment that pays off massively when other investments do poorly, that is when the marginal utility of owning an additional dollar is very high.
Usually, one would expect such investments to carry negatively, that is, to be costly over time possibly even with negative unconditional expected returns. However, if an EA utility function is sufficiently different from a typical market participant, this need not be the case, even in dollar terms (?).
Clearly, the arguments here would have to be made a lot more rigorous and quantitative to see whether this might be attractive at all. I’d be interested in any references etc.
How do people think about investing vs donating over time in practice?
When coupling investment and optimal donation problems, there is an apparent paradox if we consider:
* expected utility (EU) is pretty much linear in donations
* risk aversion with respect to own impact is non-altruistic
--> one should allocate everything to the best donation opportunity
* if there are positive EV (above risk free rate or above market beta or similar) investment opportunities one can invest and therefore increase the EU because EV translates linearly into EU
--> one should go all in on the best investment
--> seemingly there is a moral obligation to invest imprudently in order to donate with max EU
This is clearly wrong and suspiciously close to SBF-type (double+epsilon)-or-nothing scenarios.
The way I currently think about is that a one-period problem is a very poor approximation (eg if I hit an absorbing barrier down the line the outcome is bad in EU terms, my future income stream is time-varying and uncertain and a function of my liquidity), therefore risk averse investing is still optimal, even when risk averse donating is not justified.
Additionally (and hand-wavingly), I think that somewhat risk averse & diversified donations are also good because of beyond-quantifiable and moral uncertainty, diversification generating new future donation opportunities, multi-period-ness, and game theory around adverse selection & because it's reasonable not to be completely altruistic.
What are other good ways to think about the coupled donation and investment problem?