Donor strategies for separating “how much” from “where” to donate

Of late, I have been quite in­ter­ested in un­der­stand­ing the mo­ti­va­tions and strate­gies of differ­ent donors. My goal is to bet­ter un­der­stand the en­tire dy­nam­ics of the ecosys­tem (of donors and donees af­fect­ing each other). Ul­ti­mately, I hope this will help with bet­ter iden­ti­fy­ing the true marginal im­pact of dona­tions.

In this post, I de­scribe differ­ent donor strate­gies on the ex­tent to which they sep­a­rate the ques­tions of “how much” to donate from “where” to donate. In other words, does the donor first de­cide that they’ll donate a spe­cific amount, and then de­cide how to al­lo­cate that, or does the donor first de­ter­mine whom to donate to, then figure out the amount to donate?

I de­scribe:

  • Three broad strate­gies that donors use (set­ting aside now ver­sus later con­sid­er­a­tions): pre­de­ter­mined rule for amount, tar­get se­lec­tion first, and joint optimization

  • The role that sav­ing plays in adding nu­ance to the strategies

  • Philo­soph­i­cal as­sump­tions and be­liefs that might jus­tify differ­ent strate­gies. In par­tic­u­lar, I am in­ter­ested in ex­plor­ing as­sump­tions and jus­tifi­ca­tions for the pre­de­ter­mined rule strat­egy.

  • Ques­tions for readers

Three broad strate­gies that donors use

Pre­de­ter­mined rule strat­egy: Use pre­de­ter­mined rule for “how much” and de­cide the “where” within that budget

A num­ber of donors use pre­speci­fied rules for figur­ing out how much to donate. For in­stance:

The char­i­ties to which they donate may vary quite a bit be­tween years. For in­stance, Haseeb Qureshi switched from donat­ing to a mix of global health and effec­tive al­tru­ism char­i­ties, to donat­ing to a mix of AI safety and effec­tive al­tru­ism char­i­ties.

Beyond in­di­vi­d­ual donors, this strat­egy also seems en­couraged by var­i­ous donor pledges. For in­stance:

Tar­get se­lec­tion first strat­egy: Iden­tify the “where” first, then de­cide “how much”

I don’t know of too many donors who ex­plic­itly de­clare that they are fol­low­ing this strat­egy, but it’s prob­a­bly an im­plicit one for many donors (I be­lieve my own dona­tions have largely fol­lowed this pat­tern). This is a more op­por­tunis­tic ap­proach to dona­tion: the donor finds a char­ity that seems promis­ing to donate to, then figures out how much the donor can af­ford to donate to that char­ity and how much the char­ity needs. The donor de­cides the amount based on that.

Donors who fol­low this strat­egy will differ from donors who fol­low pre­de­ter­mined rules in a few ways:

  • Their giv­ing is ex­pected to fluc­tu­ate more year-over-year

  • The to­tal amount that they give will re­act more to new information

Joint op­ti­miza­tion strat­egy: De­cide the “how much” and “where” together

I don’t know of donors who ex­plic­itly de­clare that they are fol­low­ing this strat­egy, but it’s prob­a­bly an im­plicit one for many donors. I be­lieve Peter Hur­ford and Pa­trick Brinich-Lan­glois fit this strat­egy.

For in­stance, this could be a donor who, pe­ri­od­i­cally, looks at their fi­nances to iden­tify the gen­eral range of money that per­son is will­ing to donate. This could, how­ever, be a pretty wide range (po­ten­tially with zero as the lower end). The donor then looks at dona­tion op­por­tu­ni­ties. Based on how com­pel­ling the dona­tion op­por­tu­ni­ties are, and the room for fund­ing of those op­por­tu­ni­ties, the donor de­cides which ones to donate and how much.

In other words, the amount the donor donates can vary based on the strength of the op­por­tu­ni­ties (the stronger the op­por­tu­ni­ties, the more the donor will donate). The op­por­tu­ni­ties also com­pete with one an­other; par­tic­u­larly good op­por­tu­ni­ties may dis­place oth­ers.

The role that sav­ing plays in adding nu­ance to the strategies

Char­ity, con­sump­tion, and saving

If it were not pos­si­ble to save from one year to the next, the prob­lem of al­lo­ca­tion would sim­plis­ti­cally boil down to de­cid­ing how much of one’s money to al­lo­cate to char­ity ver­sus how much to al­lo­cate to con­sump­tion. Donors fol­low­ing the pre­de­ter­mined rule strat­egy would be de­ter­min­ing this al­lo­ca­tion be­fore­hand, and only af­ter that al­lo­cat­ing within the char­ity and con­sump­tion buck­ets.

How­ever, the abil­ity to save now makes it pos­si­ble to defer both char­ity and con­sump­tion to a fu­ture year.

With sav­ing in­tro­duced into the pic­ture, we could adopt ei­ther of two po­si­tions:

  • Allo­cate the sav­ing into “sav­ing for char­ity” and “sav­ing for con­sump­tion” at the time of sav­ing (i.e., within the year it­self).

  • Allo­cate the sav­ing to a gen­eral, fun­gible pool of saved money, that could be used later for ei­ther char­ity or con­sump­tion.

Allow­ing sav­ing in the pre­de­ter­mined rule strategy

Some peo­ple who pledge a per­centage of their in­come (i.e., use a pre­de­ter­mined rule strat­egy) may pre­fer not to donate right now, be­cause they didn’t find good dona­tion tar­gets, or want to in­ves­ti­gate or wait longer. To meet their goal of donat­ing, they may donate into a donor-ad­vised fund or other ve­hi­cle that can hold the funds till a fu­ture dona­tion. Ben Kuhn did this in 2017 and 2018.

Donor-ad­vised funds pre­sent tax benefits if they are re­stricted to only donate for char­i­ta­ble pur­poses. Some donors who want the flex­i­bil­ity to donate to things not rec­og­nized as char­i­ta­ble in the tax code may there­fore use an­other ve­hi­cle (or per­haps just store the money in per­sonal sav­ings), thereby not be­ing able to take im­me­di­ate tax benefits, while still clearly de­mar­cat­ing the money as “only to be used” for char­ity.

The role of sav­ing for other strategies

For peo­ple not us­ing a pre­de­ter­mined rule to de­cide how much to donate, they can:

  • al­lo­cate some of their sav­ings ex­plic­itly to a donor-ad­vised fund, to avail of tax benefits,

  • keep the rest of their sav­ings per­sonal, so that the money could op­por­tunis­ti­cally be used in a later year to fi­nance dona­tions, but doesn’t have to be used this way

Many of the wealthy peo­ple who ul­ti­mately signed the Giv­ing Pledge fol­lowed the sec­ond strat­egy, and ul­ti­mately de­cided, af­ter ac­cu­mu­lat­ing a fair amount of wealth, that they could af­ford to donate a lot of it.

Philo­soph­i­cal as­sump­tions and be­liefs that might jus­tify differ­ent strategies

The strat­egy that a donor fol­lows is a deeply per­sonal de­ci­sion based on a num­ber of per­sonal fi­nan­cial fac­tors, val­ues, and prefer­ences. So, we can­not draw definite con­clu­sions about the donor’s broader philos­o­phy from whether the donor fol­lows a pre­de­ter­mined rule strat­egy. Nonethe­less, some philo­soph­i­cal as­sump­tions make some strate­gies more jus­tifi­able than oth­ers.

For peo­ple who trust them­selves and want to re­tain max­i­mum flex­i­bil­ity and don’t care about sim­plify­ing their lives, a joint op­ti­miza­tion strat­egy seems best

Joint op­ti­miza­tion, where the donor de­cides “how much” and “where” to­gether, seems to be the strat­egy that al­lows the max­i­mum use of in­for­ma­tion in mak­ing de­ci­sions. A donor can take into ac­count de­vel­op­ments both on the char­ity side (e.g., whether the char­i­ties they are in­ter­ested in donat­ing to con­tinue to be worth­while, and whether they still have room for more fund­ing) and on the con­sump­tion side (e.g., whether the donor had un­ex­pected per­sonal ex­penses, or loss of in­come).

A pre­de­ter­mined rule strat­egy may make sense for cou­ples be­cause it avoids hag­gling and may pro­mote harmony

Dis­putes over al­lo­ca­tion of money can af­fect a cou­ple’s re­la­tion­ship. If the two mem­bers of a cou­ple have differ­ent feel­ings over how much to donate, it may be most effec­tive to sit down and figure out a rule be­fore­hand that rep­re­sents a rea­son­able com­pro­mise for both sides, rather than try to ne­go­ti­ate the bound­ary ev­ery year. The cou­ple may also de­cide how much each mem­ber con­trols of the char­ity al­lo­ca­tion (just as they may have similar rules on the con­sump­tion side).

[Although I can’t find a link to where I read this, I be­lieve the 50% figure that Jeff Kauf­man and Ju­lia Wise came up with is an ex­am­ple of this sort of com­pro­mise in ac­tion.]

A pre­de­ter­mined rule strat­egy may be viewed as benefi­cial in deal­ing with time-in­con­sis­tency is­sues (peo­ple who don’t trust their fu­ture selves)

The header ex­plains it. Fur­ther, sav­ing for char­ity into a donor-ad­vised fund (that re­quires the money to be spent on char­ity) is a similar pre­com­mit­ment to hedge against a fu­ture, less-char­i­ta­ble self.

A pre­de­ter­mined rule strat­egy might be good for norm-set­ting and com­mu­nity-level predictability

When donors pre­com­mit to donat­ing a spe­cific per­centage of their in­come, this sets a norm for other donors. We can think of the pledges, such as the One for the World Pledge, GWWC Pledge, and TLYCS Pledge, as strength­en­ing these norms by giv­ing them more ex­plicit la­bels. This norm may en­courage other donors to donate more than they oth­er­wise would.

Also, when there’s a sig­nifi­cant amount of money flow­ing into char­i­ties’ coffers from the pre­de­ter­mined rule, char­i­ties, and the com­mu­nity as a whole, know that some amount of money can be counted on. This is true even if in­di­vi­d­ual char­i­ties don’t know for sure if the money will go to them—at least they know that there’s enough of a pool of money that’s com­mit­ted to char­ity that they might hope to get. If the amount of money that’s com­mit­ted is more than enough to meet the bud­gets of the char­i­ties that the donors are con­sid­er­ing, each char­ity can be some­what con­fi­dent that they’ll get at least some of it (be­cause the other char­i­ties’ room for more fund­ing would be ex­hausted be­fore the donors had spent out all the money they com­mit­ted).

Pre­de­ter­mined rule strate­gies make sense for peo­ple who be­lieve that their opinion of the “right” amount to donate to char­ity isn’t likely to change with new ev­i­dence or developments

Hav­ing a pre­de­ter­mined rule doesn’t seem to hurt much if the donor be­lieves things in this gen­eral cluster about giv­ing op­por­tu­ni­ties:

  • The donor’s opinion of what cause area mat­ters the most won’t change much, or the right amount to donate won’t change much even if the donor’s opinion changes.

  • Cost-effec­tive­ness es­ti­mates in the area won’t change much, or the right amount to donate is not sen­si­tive to cost-effec­tive­ness es­ti­mates (see be­low).

  • The en­try or exit of other ma­jor donors to the cause ar­eas or char­i­ties of in­ter­est is un­likely, or such en­try or exit won’t af­fect the right amount to donate

Also, it makes sense if the donor be­lieves things in this gen­eral cluster about per­sonal fi­nances:

  • The struc­ture of the pre­de­ter­mined rule (whether in terms of in­come and wealth) makes sense across differ­ent pos­si­bil­ities for the per­son’s wealth, for in­stance, if the per­son has to leave a job, or has some other un­ex­pected ac­ci­dent or other ex­pense (such as a wed­ding, or kid). [From this view­point, donat­ing a per­centage of in­come may not make sense; donat­ing a per­centage of in­come-above-a-thresh­old may be more sus­tain­able]

Of course, there are de­grees of com­mit­ment, and “pre­de­ter­mined rule” doesn’t nec­es­sar­ily mean “pre­de­ter­mined rule for life”. So, a more ac­cu­rate way of fram­ing this is that pre­de­ter­mined rule strate­gies make sense if the donor doesn’t ex­pect changes to the “right” amount to donate within the timeframe that the donor has com­mit­ted to. In other words, the right amount to donate shouldn’t be too fluid. (How­ever, it’s differ­ent for peo­ple who take life­time pledges, which might be why there is some crit­i­cism of lifelong pledg­ing from Buck Sh­legeris and An­drew Critch).

My past puz­zle­ment at in­sen­si­tivity to cost-effec­tive­ness estimates

A few years ago, I had trou­ble un­der­stand­ing this be­lief that the “right” amount to donate doesn’t change much with cost-effec­tive­ness es­ti­mates. I even wrote a long com­ment on the GiveWell blog about this. Later, I asked the ques­tion on the Effec­tive Altru­ism Face­book group, where there were a num­ber of in­ter­est­ing replies that re­solved much of my puz­zle­ment.

Ques­tions for readers

My goal with post­ing this to the Effec­tive Altru­ism Fo­rum is partly to provide a con­crete pub­lic record of my thoughts. I can link to this post and build upon it as I fur­ther ex­plore the dy­nam­ics of dona­tions.

How­ever, I’m also in­ter­ested in hear­ing thoughts from peo­ple on the Fo­rum, many of whom are donors of the sort I try to un­der­stand in the post.

Some ques­tions I’m par­tic­u­larly in­ter­ested in hear­ing thoughts on:

  • What’s your strat­egy as a donor? Does it fit within the three broad types of strate­gies I de­scribe in the post?

  • Are there other as­pects of these strate­gies that you con­sider im­por­tant, that I missed? For in­stance, are there some other pros and cons of pre­de­ter­mined rule strate­gies?

  • My im­pres­sion is that the effec­tive al­tru­ism (EA) com­mu­nity uses pre­de­ter­mined rules more than other donors, who come closer to “tar­get se­lec­tion first” or “joint op­ti­miza­tion” in their strat­egy (i.e., they are more likely to be moved by spe­cific events or de­vel­op­ments in their de­ci­sion of how much to donate). Am I right, and if so, is this good?