by on December 26, 2011 at 1:57 pm in Economics, Law | Permalink

GiveWell, by far the best charity evaluator working today, has a new top ranked charity, the Against Malaria Foundation. Why is VillageReach, their best ranked charity for several years, no longer at the top? First, GiveWell is ranking more charities and charities are now more willing to provide GiveWell the kind of detailed information on outcomes that GiveWell demands. Thus, more charities are vying for the top spot. Even more important is this:

VillageReach was our top-rated organization for 2009, 2010 and much of 2011 and it has now received over $2 million due to GiveWell’s recommendation. We do not believe that VillageReach has short-term funding needs…

When was the last time that a charity or evaluator told you that due to successful fund-raising there are now more urgent needs elsewhere? Impressive. As I have for several years, I will be following GiveWell’s advice and donating to the Against Malaria Foundation and several of GiveWell’s other top charities.

1 Jeff Kaufman December 26, 2011 at 2:17 pm

GiveWell is great, but I’m, not sure you should be donating both to AMF and to “several of GiveWell’s other top charities.” If you think AMF is better, you should give just to them. If you think another charity is better you should give just to them. Steven Lansdburg does a good job of explaining this:

If your charitable contributions are small relative to the size of the charities,
and if you care only about the recipients (as opposed to caring, say, about
how many accolades you receive), then you will bullet all your contributions
on a single charity.
“”” —

2 Stefan December 26, 2011 at 5:02 pm

Landsburg’s argument is odd. He makes an analogy with portfolio diversification and then attempts to knock it down with an irrelevant point about the marginal impacts. This is the nut:

> When it comes to managing your personal portfolio, economists will tell you to diversify. When it comes to handling the rest of your life, we give you exactly the same advice. It’s a bad idea to spend all your leisure time playing golf; you’ll probably be happier if you occasionally watch movies or go sailing or talk to your children.

> So why is charity different? Here’s the reason: An investment in Microsoft can make a serious dent in the problem of adding some high-tech stocks to your portfolio; now it’s time to move on to other investment goals. Two hours on the golf course makes a serious dent in the problem of getting some exercise; maybe it’s time to see what else in life is worthy of attention. But no matter how much you give to CARE, you will never make a serious dent in the problem of starving children.

I’m honestly not sure what this is supposed to mean. Portfolio diversification is a means of reducing risk from correlated returns. The bit about golfing is an Econ 101 homily about marginal effects. Neither has much to do with the original question, which is whether it makes sense to contribute to more than one charity. It is easy to make the case that you should donate money in the way that has the maximum impact (no economics required), but it is harder to say what to do in the face of uncertainty. (I also find arguments such as Lansdburg’s excessively dismissive of the notion that people should derive pleasure from their charitable giving, but this is a more complicated topic.)

3 Chris December 26, 2011 at 9:11 pm

I’ve never found that Landsberg argument compelling either. What exactly is wrong with “an elevation of your own desire for satisfaction”? My desire for satisfaction is the utility of charitable giving, and I enjoy being affiliated with causes I believe in. So what? Those are my preferences, and economists aren’t supposed to be in the business of explaining why preferences are wrong.

4 Steve December 26, 2011 at 10:09 pm

Chris, there are basically two kinds of micro research. The first is what you mentioned where economists take seemingly irrational behavior and find “hidden” incentives to make sense of the world. The other kind tries to show that people are actually irrational because they violate some axioms for rational behavior–like showing that it makes no sense in Massachusetts to vote if you’re doing it to influence the presidential election. Landsburg is doing something like that, assuming that people are donating to charity to help people and then showing that he figured out a better way using some math/economists. But you evidently don’t care about helping people with your donations so his argument doesn’t apply to you. He’d probably wonder what it is about not helping people that brings you “satisfaction.”

To answer Stefan’s question about uncertainty, Lansburg is, I think, implicitly assuming something like that a rational person is an expected utility maximizer because that is used a lot in economics papers but he didn’t mention it for space constraints.

5 Rahul December 27, 2011 at 12:43 am

Landsburg’s argument sort of defeats itself. He’s arguing for pure charitable giving; untainted by any self-satisfaction. At this point there’s no longer an “incentive” at play and I wonder how he can then apply the rest of his economic machinery. From the point of view of the agent there has to be something to maximize utility?

6 Steven E Landsburg December 28, 2011 at 6:46 pm

Chris: As others have said, you’re entitled to your preferences. The point of my writing on this was to ask the question “Which observed behaviors are consistent with a preference for charity, as opposed to a preference for self-satisfaction?”. Under fairly broad conditions, diversification across charities is not consistent with a preference for pure charity — defined via the welfare of the recipients.

7 Jeff Kaufman December 26, 2011 at 11:43 pm

You’re right that what he says about diversification makes no sense. We diversify to reduce risk, because we are risk averse. I wouldn’t personally get twice the utility from $2M than $1M, so I would prefer a 100% chance of $1M to a 60% chance of $2M; I’m risk averse. The real issue is whether we should be risk-averse with respect to charity. I think we should be: a 60% chance of distributing 2M vaccine doses beats a 100% chance of distributing 1M.

8 Alex Flint December 27, 2011 at 2:07 am

Normally risk aversion is explained by diminishing marginal utility of the good in question: $2M in your pocket is less than twice as good as $1M.

In the case of charities the charge is that 2M vaccines are exactly twice as good as 1M vaccines, in which case risk aversion is less justified.

You are of course entitled to your preferences, whatever they may be, but are you sure those were the preferences you intended?

9 Jeff Kaufman December 27, 2011 at 10:42 am

I’m sorry, I left out a “n’t”:

I think we *shouldn’t* be: a 60% chance of distributing 2M vaccine doses beats a 100% chance of distributing 1M.

10 Steven E Landsburg December 28, 2011 at 6:44 pm

Stefan: Yes, it’s harder to say what to do in the face of uncertainty—-but it’s not impossible. Some fairly simple mathematics tells you that in the presence of uncertainty, the extent of your diversification should depend on second derivatives. What I’m arguing for is linearity when your contributions are small relative to the size of the charities.

As Alex Flint says below, 2M vaccines are exactly twice as good a 1M vaccines, which is exactly what undercuts the case for diversification. By contrast, $2M in your bank account is NOT exactly twice as good as $1M in your bank account, which is why, in that case, you should diversify.

11 Malto Dextrin December 27, 2011 at 12:56 pm

It’s not necessarily all about doing the most good or maximizing your own self-satisfaction. Many people feel the need to give, generally, out of a sense of moral obligation to do so. They give to multiple charities, rather than just one, because it somehow feels more fair.

12 Chris L December 26, 2011 at 2:18 pm

It would be impressive if VillageReach said they didn’t need more money.
I would be quite willing to name some non-profits that I think don’t serve very urgent needs if anyone wants to listen.

13 Chris L December 26, 2011 at 2:21 pm

To be clear i have no problem with GiveWell. Sounds like a fine organization with a worthy mission…, just dont think it is that impressive when a third party says someone else has enough money

14 jva December 27, 2011 at 3:49 am

Would you find it impressive when a third party says someone else does not have enough money?

15 Sandeep December 26, 2011 at 3:14 pm

So does that mean you disagree with Tyler Cowen’s prescription?

16 Jeff Kaufman December 26, 2011 at 11:36 pm

My understanding is GiveWell thinks giving cash to poor people in the third world may be competitive with the best giving options:

They are looking into the charity Give Directly, which intends to make it easy to do this. Give Directly is running a randomized controlled trial of direct cash transfers, and have preregistered their study design. This should let us better compare giving cash to net distribution and deworming.

Tyler’s endorsement of “zero-overhead giving” doesn’t make much sense to me: the difference between 10% and 0% overhead only matters if charities are nearly equal in effectiveness. Because some charities are many times better than others, overhead is only a minimal factor, for now at least.

17 Sandeep December 27, 2011 at 8:57 am

Thanks, that is very useful.

18 tomslee December 26, 2011 at 3:59 pm

“GiveWell, by far the best charity evaluator working today” I have heard this elsewhere, but I also know they have had their problems in the past. So is there a reliable “charity evaluator evaluator” somewhere, or can someone say why GiveWell is the best of the evaluators?

19 James December 26, 2011 at 7:33 pm is exactly what you’re looking for.

20 tomslee December 27, 2011 at 8:48 am

Thanks James.

21 Ron Noble December 26, 2011 at 7:24 pm

GiveWell does something different from other charity evaluators: It attempts to rank charities by the amount of good that they do. Other evaluators focus on things like what portions of the donations go to overhead, etc. That plus a lot of hardnosed research to try to figure out who does the most good are the strength of GiveWell, in my opinion.

The reason diversification makes sense for an individual is the declining marginal utility of wealth for an individual. If the value of money remained linear, then if you had $1 million of total wealth, and someone offered you an investment with a 60% chance of doubling your wealth and a 40% chance of leaving you with nothing, by the expected value in money it is a good bet, but for your utility it is not, because the extra $1 million if you won succeeded would do very little good for you compared to the harm caused if you lost everything you had. When giving to charity, it seems more reasonable to view the value of what you give as increasing in a linear fashion. Hence just go with the greatest expected value.

22 Ron Noble December 26, 2011 at 7:26 pm

One other comment: There is an argument to be made for an objective third party saying whether a charity could use more funding effectively. You might expect the charity itself to always say it could use more.

23 Anon December 26, 2011 at 9:01 pm

But which of these charities have charismatic founders who will speak at your company’s conferences if you become a major donor? GiveWell seems to ignore this vital bit of information.

24 jseliger December 27, 2011 at 3:22 pm

When was the last time that a charity or evaluator told you that due to successful fund-raising there are now more urgent needs elsewhere?

Never, to my knowledge; it’s so rare that, in my own work as a grant writing consultant, I tell clients not to worry about evaluations. Virtually no funders, and certainly no federal or state funders, are interested in evaluations in any serious way.

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