Effective altruism and money
12 Oct 2021- Stephen Bosch
10 min read
The world has many very serious problems. Perhaps you care about the state of the world and fate of the people in it, as I do. And so you might think a lot about your impact and the consequences of your actions. I suppose you could call it worry. I certainly worry about making mistakes and causing harm to people and the environment on which we all depend.
This is desirable in theory. But these questions about harm are not easily or quickly answered. And so attaching them to everyday decisions slows everything down, and that interferes with learning. You need a composite of successes and failures to extract information from the world. You need to make mistakes. And the faster you make those mistakes, the sooner you’ll learn.
In order to unburden everyday decision-making, you need to remove these deep questions from the decision and treat them separately and in advance. You have to get your head straight first.
Effective entrepreneurship demands the ability to learn quickly. If you enter the race feeling ambiguous, you will hesitate, you will dither, and ultimately you will fail. You need to bring all of your being to the fight. You need to be focused and driven, you need to deeply understand why you are doing what you’re doing if you’re going to be maximally effective, if you’re going to apply all your energy and skill to the challenge, and if you’re going to make it through the inevitable tough stretches.
To get my head straight, I asked myself these questions:
What do you care about?
What do you believe?
What is your mission?
What are you prepared to do in service of your mission?
How can you ensure that you do the most good?
Everyone is causing harm
Here’s a truth that was hard for me to face.
No matter how well-intentioned I am, no matter how good a person I strive to be, I will cause harm. That harm may be invisible to me, but it is real, and it is inescapable.
How can I know this?
If perfection is unattainable in a thing, then it follows that any thing will be imperfect along any measure.
In any system with multiple variables, there will be interactions between those variables such that improvement in one variable results in a deterioration in some other variable that you care about. This is called a trade-off.
Choices still have consequences
Does that mean that it doesn’t matter what we do? No.
Probably there is some combination of trade-offs with which I would feel comfortable, which by some measure could be called “of net benefit to the world.” Formally, this is known a “multicriterial optimum”. It is also probable that I am not already close to that multicriterial optimum. Assume for a moment that, given a finite number of combinations of trade-offs, say 100, there is a single optimal combination. A randomly chosen combination of trade-offs has a 99/100 chance being sub-optimal.
Assuming that you have some efficacy, you can, through your actions, push your trade-offs in a direction that results in an improvement in the value of the net benefit to the world. So it does matter what we do.
There are many different ways in which your actions affect the world around you. But in this post, I’m going to focus specifically on the effects of money.
Your money has an impact on the world in two ways:
- How you earn it
- How you spend it
How you earn your money
What factors determine the balance of good and bad in the way you earn your living? Here are a few:1
- The industry or sector you work in…
- Do you work in defence industry (weapons), gambling, or tobacco? Or do you work in social work, health care, or environmental protection?
- The specific job you do…
- Are you a nurse or physician treating patients? Or are you a hospital administrator or lawyer fighting malpractice suits, no matter how legitimate?
- How the business or business unit you work in earns its money…
- Does the company you work in sell private health insurance to elderly people who cannot really afford it, or does it insure uninsured people in a way that is appropriate to their financial circumstances and real need?
How you spend your money
When you buy things, your money helps marshal labour and resources. You are motivating people to do things for you, for good or ill. It is perhaps more correct to say for good and ill, since it is difficult to imagine an ostensibly “good” action that could not have some negative consequences, or a “bad” action that could not have some positive consequences.
Most of the things you buy don’t involve an obvious and direct moral choice. Further, second- and nth-order consequences (the consequences of the consequences of our choices) usually aren’t obvious, if they can be revealed at all. But it seems clear that buying something is a late step in a long chain of steps that necessarily precedes the purchase, and that the prospect of the sale (the other side of the purchase) acts as an inducement for those steps which is transmitted up the chain.
Being deliberate about both
How can things change when you start making explicit, evidence-based decisions about how you dispense your money?2
Additive versus subtractive paradigms
In an additive paradigm, you pursue more of what’s good.
In a subtractive paradigm, you strive to reduce what’s bad.
The additive paradigm
Pursuing the positive seems to be sensible because for any additive thing (say friends, or money) there is no theoretical upper limit. But in practice, everything has limits. Your enjoyment of money or friends diminishes with each additional unit you “consume.” This is so universal that it’s been codified in Gossen’s First Law (a.k.a. “Law of diminishing marginal utility”).
This is why striving for more gets increasingly difficult: the amounts needed to get the same reward are ever increasing. Things never get easier; the target keeps moving and the effort required to approach it seems to stay the same.
When free-market optimists say “it’s better to try to make more than to save more, because you can always make more, but there is a hard limit on what you can save”, they are only partially right. How rewarding your efforts to make more money feel will change depend on how much you are already making. That’s diminishing marginal utility at work.
There are other problems with the additive paradigm. It’s often not obvious what you need to do to get more of what’s good.
The subtractive paradigm
The impulse to avoid pain is entirely natural, and as it turns out, human beings are pretty good at it. They understand what behaviours are immediately dangerous to life and health, and they spend most of their existence trying to avoid death.
Avoiding or soothing pain is a qualitatively different experience from experiencing pleasure. We use different language to describe it.
The subtractive paradigm is not very exciting, but it is underestimated. Some of the world’s most successful people became that way through rigorous risk management. Why are managing risk and avoiding loss so important? Because it is much harder to recover from losses. Here is a simple example:
Consider an imaginary currency, let us call it the euron. Assume starting capital of 10,000 eurons.
If, in the first year, your annual return is 10%, after that year you will have 11,000 eurons.
But if instead your return is -10% (a loss), after that year you will have 9,000 eurons.
To get recover your starting capital in the following year, you would need a return of 11,1%:
9,000 x 1,11 = 10,000
and to get to where you would have been assuming an recurring annual return of 10%, you would need a return of 22,2%.
The effort required is less if you don’t lose the money in the first place.
Or consider the impact of health interventions. Nassim Taleb writes in Antifragile of statistical modelling of medical expenditures done with his friend Spyros Makridakis.3 Together they found that, in wealthy countries, limiting expenditures through cuts to elective procedures and treatments would extend people’s lives, particularly in the United States. This is because medical interventions have their own risks, and when the benefit is small, as it typically is with elective procedures, the harm done through complications and medical errors will, in aggregate, exceed it.
He quotes Druin Burch’s Taking the Medicine: “The harmful effects of smoking are roughly equivalent to the combined good ones of every medical intervention developed since the war… Getting rid of smoking provides more benefit than being able to cure people of every possible type of cancer.”
Combining additive and subtractive approaches in practice
Let’s review what I’ve covered so far.
Some harm is inevitable. Given that, I should look for the combination of career (how I earn money) and lifestyle (how I spend money) that minimizes harm and maximizes benefit.
One way to do this is to do work that is neutral or of net benefit and then channelling some portion of my income towards causes or initiatives that have proven evidence of benefit.
On the career side, I am doing this by working as an engineer in the renewable energy sector in some capacity and starting a business with a sustainability mission.
On the lifestyle side, I have always tried to be a conscious consumer. But it seems clear that the impact of conscious consumption is very limited when compared with the impact that could be achieved by supporting causes or initiatives with proven evidence of benefit with some meaningful portion of my annual income, say 10%.4
The ideas I’ve outlined above are not new. Some of them originate in the field of effective altruism, which uses high-quality evidence and careful reasoning to determine how to help others as much as possible. Not surprisingly, people who apply what they learn from this study call themselves effective altruists.
Effective altruists have already developed some key concepts and tools.
The effective-altruist organisation Giving What We Can (GWWC) is built on the premise that you can do a great amount of good by donating a substantial portion of your income to effective charities on a regular basis.
To support this idea, they developed the idea of the Pledge to Give. The Pledge reads:
I recognise that I can use part of my income to do a significant amount of good. Since I can live well enough on a smaller income, I pledge that from now until ___ I shall give ___ to whichever organisations can most effectively use it to improve the lives of others, now and in the years to come. I make this pledge freely, openly, and sincerely.
GWWC provide a calculator to compute the impact of such a pledge on your finances. You enter your country, your household’s after-tax income, the number of people in your household, and what percentage of your income you want to give (they suggest at least 10%), and it will give you an estimate of your impact.
Here’s an example. A household in Germany with an after-tax income of 33,000 EUR, one adult and one child belongs to the richest 4.9% of the global population. If that household elects to donate 10% of after-tax income, its members would donate 3,300 EUR over the course of the year, enough to fund the distribution of 808 insecticide-treated bednets (to fight the spread of malaria in affected regions) and 4,209 treatments for schistosomiasis (the world’s most common parasitic infection, which can cause chronic illness and poor childhood development). Even donating this much, it would still be in the richest 6% of the global population.
Am I an effective altruist? Not yet, but I’m learning more about it. Here’s my vision for how I might apply it in my own life.
I often wonder if anything I am doing in life is making a difference for anyone, and I’m clearly not alone in this.
The approach of effective altruism appeals to my scientist’s heart. By working in a beneficial industry while also publicly committing to donating to effective charities helping to solve important problems:
- More people are helped than before.
- My work contributes positively to improving the world.
- I am motivated to keep doing it, due to the natural human bias towards consistency.
- I connect earning my living to helping others, even if the work I do doesn’t necessarily directly help people in need. This liberates me from unproductive daily rumination about benefits and harms.
- I learn to think about efficacy by choosing charities and initiatives on a regular basis.
- My perspective on money is changed. I learn to manage with less. Perhaps the difference in quality of life will be imperceptible. Learning to live with just a little bit less makes me more resilient.
- I join a community of like-minded people with similar goals and am exposed to new possibilities.
- I set an example for others.
One of my ideas for the business is to provide analysis of sustainable businesses to investors. In a recent post, I showed that it is almost impossible, today, to invest in a broadly diversified manner while also advancing sustainability. But this area of finance is developing rapidly, so this analysis is worth continuing, even if it is not possible, today, to “invest sustainably” in any real sense.
By adopting the two-pronged approach of working for beneficial aims and distributing the fruits of my labour in the most helpful way possible, I can still contribute to improving the state of the world immediately.
This leaves me with some questions:
- What organisations are using evidence-based decision-making to allocate their resources in the service of sustainability? An examination of the UN Sustainable Development Goals might offer a starting point for finding them. (Can I use my personal mission as a guide here?)
- What other worthwhile causes might I contribute to that I have not yet considered?
- How much of my income should I direct toward my donations, and how will this change my finances in practice?
I’ll try to answer these questions in the coming weeks.⊡
Some links to learn more
The core idea for “Giving What We Can” can be taken further. By earning to give, you aim to earn more in order to give more.
I’m deliberately leaving out a more philosophical discussion about whether we need defence industries or not, or whether working as a lawyer defending a hospital against a malpractice suit is net beneficial or net harmful. ↩
I want to avoid calling it spending because I’m also thinking about money you give without expecting something in return.) ↩
This is not an argument for not continuing to be a conscious consumer. I can still do both! ↩