But we think that is unlikely to happen by default. There is a mismatch between the probability distribution of investor profits and that of impact. Impact can go vastly negative while investor profits are capped at only losing the investment. We therefore risk that our market exacerbates negative externalities.
Standard distribution mismatch. Standard investment vehicles work the way that if you invest into a project and it fails, you lose 1 x your investment; but if you invest into a project and it’s a great success, you may make back 1,000 x your investment. So investors want to invest into many (say, 100) moonshot projects hoping that one will succeed.
When it comes to for-profits, governments are to some extent trying to limit or tax externalities, and one could also argue that if one company didn’t cause them, then another would’ve done so only briefly later. That’s cold comfort to most people, but it’s the status quo, so we would like to at least not make it worse.
Charities are more (even more) of a minefield because there is less competition, so it’s harder to argue that anything anyone does would’ve been done anyway. But at least they don’t have as much capital at their disposal. They have other motives than profit, so the externalities are not quite the same ones, but they too increase incarceration rates (Scared Straight), increase poverty (preventing contraception), reduce access to safe water (some Playpumps), maybe even exacerbate s-risks from multipolar AGI takeoffs (some AI labs), etc. These externalities will only get worse if we make them more profitable for venture capitalists to invest in.
We’re most worried about charities that have extreme upsides and extreme downsides (say, intergalactic utopia vs. suffering catastrophe). Those are the ones that will be very interesting for profit-oriented investors because of their upsides and because they don’t pay for the at least equally extreme downsides.
They refer to Drescher’s post. He writes: