It is common knowledge that diversification is a strategy used by risk-adverse agents to counter the negative effects of uncertainty.
When one is risk averse, one trades some expected gain to minimize potential loss. The relevant question is whether it makes any sense to be risk averse with respect to your charity donations.
I’d say no. Risk aversion for my own pile of money comes largely from decreasing marginal utility of each dollar in my pile when spent on me and mine. My first and last dollar to most charities are two drops in a bucket, with the same marginal “problem solving” power.
This doesn’t take into account the other benefits of charitable giving, such as signaling and good feelings. In both cases, I’d say that others and you respond more favorably to you the more charities you donate to. In that respect, at least, there is decreasing marginal utility for each dollar more spent on a particular charity. But I think that feel good aspect was not part of the assumed utility calculation. If your goal is to best solve problems, take aim at what you consider the best target, and shoot your wad.
There are many charities that provide goods or services that their donors can use, think of the Wikimedia Foundation or the Free Software Foundation or even the Singularity Institute (which operates Less Wrong). You can donate to these charities for non-altruistic motives other than mere signalling or good feelings, and these motives will likely have diminishing returns, naturally resulting in risk aversion. (Or you may reason that since your small donation isn’t going to make a difference, you can as well freeload, but that is the same argument against voting).
But let’s assume that we are considering only “save the starving children” type of charities, where the set of donors and the set of beneficiaries don’t overlap, and your donations can only buy welfare (measured in QUALYs or some other metric) for distant individuals you don’t personally know. Are you not risk averse?
Consider the following scenario: There are two possible charities. For every 100,000 euros of donations, charity A saves the lives of 50 children (that is, allows them to reach adulthood in a condition that enables them to provide for themselves). Charity B either saves 101 children per 100,000 euros or fails, completely wasting all the donated money, with a 50-50 chance. You have got 100 euros to donate. How do you split them?
When one is risk averse, one trades some expected gain to minimize potential loss. The relevant question is whether it makes any sense to be risk averse with respect to your charity donations.
I’d say no. Risk aversion for my own pile of money comes largely from decreasing marginal utility of each dollar in my pile when spent on me and mine. My first and last dollar to most charities are two drops in a bucket, with the same marginal “problem solving” power.
This doesn’t take into account the other benefits of charitable giving, such as signaling and good feelings. In both cases, I’d say that others and you respond more favorably to you the more charities you donate to. In that respect, at least, there is decreasing marginal utility for each dollar more spent on a particular charity. But I think that feel good aspect was not part of the assumed utility calculation. If your goal is to best solve problems, take aim at what you consider the best target, and shoot your wad.
There are many charities that provide goods or services that their donors can use, think of the Wikimedia Foundation or the Free Software Foundation or even the Singularity Institute (which operates Less Wrong). You can donate to these charities for non-altruistic motives other than mere signalling or good feelings, and these motives will likely have diminishing returns, naturally resulting in risk aversion. (Or you may reason that since your small donation isn’t going to make a difference, you can as well freeload, but that is the same argument against voting).
But let’s assume that we are considering only “save the starving children” type of charities, where the set of donors and the set of beneficiaries don’t overlap, and your donations can only buy welfare (measured in QUALYs or some other metric) for distant individuals you don’t personally know. Are you not risk averse?
Consider the following scenario: There are two possible charities. For every 100,000 euros of donations, charity A saves the lives of 50 children (that is, allows them to reach adulthood in a condition that enables them to provide for themselves). Charity B either saves 101 children per 100,000 euros or fails, completely wasting all the donated money, with a 50-50 chance. You have got 100 euros to donate. How do you split them?
I would give only to B. I try to be risk-neutral in my giving.