We have a much flatter utility curve for consumption (ignoring world-state) vs individual investors (using GiveWell’s #s, or cause variety). [Strong]
Can you elaborate on why you believe this? Are you talking specifically about global poverty interventions, or (EA-relevant) philanthropy in general? (I can see the case for global poverty[1], I’m not so sure about other causes.)
We have a much lower correlation between our utility and risk asset returns. (Typically equities are correlated with developed market economies and not natural disasters) [Strong]
I’m also not clear on why you believe this, can you explain? (FWIW the claim in the parenthetical is probably false: on a cross-section across countries, GDP growth and equity return are negatively correlated, see Ritter (2012), “Is Economic Growth Good for Investors?”)
[1] The total amount of money going to global poverty interventions is much smaller than the amount required to eliminate global poverty. Additional money can go to new recipients, which gives that money linear-ish utility. This is somewhat muddied by the fact that it becomes more difficult to find recipients. Something like malaria nets probably has substantially sub-linear utility, although I don’t know how scalable malaria nets are, I looked into this a bit and couldn’t find anything obvious.
Thanks, I hadn’t gotten to your comment yet when I wrote this. Having read your comment, your argument sounds solid, my biggest question (which I wrote in a reply to your other comment) is where the eta=0.38 estimate came from.
Can you elaborate on why you believe this? Are you talking specifically about global poverty interventions, or (EA-relevant) philanthropy in general? (I can see the case for global poverty[1], I’m not so sure about other causes.)
I was mosty thinking global poverty and health yes. I think it’s still probably true for other EA-relevant philanthropy, but I don’t think I can claim that here.
I’m also not clear on why you believe this, can you explain? (FWIW the claim in the parenthetical is probably false: on a cross-section across countries, GDP growth and equity return are negatively correlated, see Ritter (2012), “Is Economic Growth Good for Investors?”)
1/ I don’t think that study is particularly relevant? That’s making a statement about the correlation between countries growth rates and the returns on their stock markets.
2/ I don’t think there’s really a study which is going to convince me either way on this. My reasoning is more about my model of the world:
a/ Economic actors will demand a higher risk premium (ie stocks down) when they are more uncertain about the future because the economy in the future is less bright (ie weak economy ⇒ lower earnings)
b/ Economic actors will demand a higher risk premium when their confidence is lower
I don’t think there’s likely to be a simple way to extract a historical correlation, because it’s not clear how forward looking you want to be estimating, what time horizon is relevant etc. I think if you think that stocks are negatively correlated to NGDP AND you think they have a risk premium, you want to be loading up on them to absolutely unreasonable levels of leverage.
Can you elaborate on why you believe this? Are you talking specifically about global poverty interventions, or (EA-relevant) philanthropy in general? (I can see the case for global poverty[1], I’m not so sure about other causes.)
I’m also not clear on why you believe this, can you explain? (FWIW the claim in the parenthetical is probably false: on a cross-section across countries, GDP growth and equity return are negatively correlated, see Ritter (2012), “Is Economic Growth Good for Investors?”)
[1] The total amount of money going to global poverty interventions is much smaller than the amount required to eliminate global poverty. Additional money can go to new recipients, which gives that money linear-ish utility. This is somewhat muddied by the fact that it becomes more difficult to find recipients. Something like malaria nets probably has substantially sub-linear utility, although I don’t know how scalable malaria nets are, I looked into this a bit and couldn’t find anything obvious.
(In case it’s useful to either Simon or Michael: I argue in favor of both these points in my comment on this post.)
Yes, I thought your comment was great!
Thanks, I hadn’t gotten to your comment yet when I wrote this. Having read your comment, your argument sounds solid, my biggest question (which I wrote in a reply to your other comment) is where the eta=0.38 estimate came from.
I was mosty thinking global poverty and health yes. I think it’s still probably true for other EA-relevant philanthropy, but I don’t think I can claim that here.
1/ I don’t think that study is particularly relevant? That’s making a statement about the correlation between countries growth rates and the returns on their stock markets.
2/ I don’t think there’s really a study which is going to convince me either way on this. My reasoning is more about my model of the world:
a/ Economic actors will demand a higher risk premium (ie stocks down) when they are more uncertain about the future because the economy in the future is less bright (ie weak economy ⇒ lower earnings)
b/ Economic actors will demand a higher risk premium when their confidence is lower
I don’t think there’s likely to be a simple way to extract a historical correlation, because it’s not clear how forward looking you want to be estimating, what time horizon is relevant etc. I think if you think that stocks are negatively correlated to NGDP AND you think they have a risk premium, you want to be loading up on them to absolutely unreasonable levels of leverage.