According to the efficient market hypothesis, if all investors have the same information and behave rationally, all assets will be priced “correctly”. Under these conditions, it becomes impossible to consistently beat the market.

The efficient-market hypothesis is usually discussed in financial contexts, but it can in principle apply—or fail to apply—in any market, including philanthropy. If all philanthropists are trying to help others the most and rely upon publicly available information, the efficient-market hypothesis implies that philanthropic resources will be optimally allocated. The more efficient the market for philanthropy, the harder it is to identify outstanding giving opportunities (which are likely to have been already snapped up by previous funders).

The efficient-market hypothesis applied to financial markets is controversial, and there are good reasons to think that the philanthropy market is less efficient than financial markets. Maximizing return on investment is the predominant motivation among investors, whereas philanthropists are often motivated by concerns other than doing the most good. Furthermore, different donors have different moral beliefs, so even if each was motivated purely by moral considerations, lower levels of efficiency should be expected in the philanthropy market....

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