Thanks for this Jamie. Useful to know that the outcome can differ according to person/location. I reckon I’ll do this exercise for myself at some point. A few quick questions/comments (I haven’t looked at this in detail so apologies if I’ve missed anything):
Have you identified the key difference(s) between your calculation and John’s calculation that leads to the different result? It might be helpful to call this out
E.g. is it mainly driven by higher rental costs in London / the fact that you’ve assumed a smaller deposit for the house etc.
Pretty minor point, but the 3.5% discount rate should decline over time and it doesn’t seem you’ve factored this in (it shouldn’t really change much though as you’re not looking over a very long time scale)
I’m not really sure how useful the 3.5% discount rate is for philanthropists, in particular EA philanthropists. It includes a discount of future utility on account of the future being less morally valuable, which is something that philosophers have pretty much rejected and is quite counter to EA philosophy. There are good reasons for EA philanthropists to discount (more on that here and here) but I don’t there’s a good reason for us to expect it to lead to a 3.5% rate. It could actually be higher or lower depending on an individual’s preferred cause area/underlying ethical views. The general point that you’re making that buying a house only provides access to money when older, and therefore that this becomes subject to discounting is a very useful one though.
Doesn’t John’s calculation also say buying is better? Or am I missing something?
Have you identified the key difference(s) between your calculation and John’s calculation that leads to the different result? It might be helpful to call this out
No, I haven’t gone through and done that. Actually, John’s calculations still come out in favour of buying from a financial perspective, albeit by a much smaller margin than in my calculations; I think he was put off for other reasons.
Pretty minor point, but the 3.5% discount rate should decline over time and it doesn’t seem you’ve factored this in (it shouldn’t really change much though as you’re not looking over a very long time scale)
I’m probably doing the maths completely wrong on that bit… suggestions for correct formula to use are welcome. Commenting on the sheet is currently on if you want to comment on directly.
It could actually be higher or lower depending on an individual’s preferred cause area/underlying ethical views. The general point that you’re making that buying a house only provides access to money when older, and therefore that this becomes subject to discounting is a very useful one though
Yeah I haven’t got my head very thoroughly round the various arguments on this, so thanks for sharing. My impression was also that using 3.5% didn’t make much sense and should probably either go lower than that (for “patient” reasons) or much higher (if you think opportunities for cost-effective giving will diminish rapidly for various reasons.
Some relevant context I probably should have added to the post was that I did this calculation because I was very surprised at John’s overall conclusion and wanted to check it, and, despite this not being very thorough or anywhere near my research “expertise”, I thought other people might benefit from these rough and ready efforts, so decided to share.
Thanks for this Jamie. Useful to know that the outcome can differ according to person/location. I reckon I’ll do this exercise for myself at some point. A few quick questions/comments (I haven’t looked at this in detail so apologies if I’ve missed anything):
Have you identified the key difference(s) between your calculation and John’s calculation that leads to the different result? It might be helpful to call this out
E.g. is it mainly driven by higher rental costs in London / the fact that you’ve assumed a smaller deposit for the house etc.
Pretty minor point, but the 3.5% discount rate should decline over time and it doesn’t seem you’ve factored this in (it shouldn’t really change much though as you’re not looking over a very long time scale)
I’m not really sure how useful the 3.5% discount rate is for philanthropists, in particular EA philanthropists. It includes a discount of future utility on account of the future being less morally valuable, which is something that philosophers have pretty much rejected and is quite counter to EA philosophy. There are good reasons for EA philanthropists to discount (more on that here and here) but I don’t there’s a good reason for us to expect it to lead to a 3.5% rate. It could actually be higher or lower depending on an individual’s preferred cause area/underlying ethical views. The general point that you’re making that buying a house only provides access to money when older, and therefore that this becomes subject to discounting is a very useful one though.
Doesn’t John’s calculation also say buying is better? Or am I missing something?
No, I haven’t gone through and done that. Actually, John’s calculations still come out in favour of buying from a financial perspective, albeit by a much smaller margin than in my calculations; I think he was put off for other reasons.
I’m probably doing the maths completely wrong on that bit… suggestions for correct formula to use are welcome. Commenting on the sheet is currently on if you want to comment on directly.
Yeah I haven’t got my head very thoroughly round the various arguments on this, so thanks for sharing. My impression was also that using 3.5% didn’t make much sense and should probably either go lower than that (for “patient” reasons) or much higher (if you think opportunities for cost-effective giving will diminish rapidly for various reasons.
Some relevant context I probably should have added to the post was that I did this calculation because I was very surprised at John’s overall conclusion and wanted to check it, and, despite this not being very thorough or anywhere near my research “expertise”, I thought other people might benefit from these rough and ready efforts, so decided to share.