How do people think about investing vs donating over time in practice?
When coupling investment and optimal donation problems, there is an apparent paradox if we consider: * expected utility (EU) is pretty much linear in donations * risk aversion with respect to own impact is non-altruistic --> one should allocate everything to the best donation opportunity
* if there are positive EV (above risk free rate or above market beta or similar) investment opportunities one can invest and therefore increase the EU because EV translates linearly into EU --> one should go all in on the best investment --> seemingly there is a moral obligation to invest imprudently in order to donate with max EU
This is clearly wrong and suspiciously close to SBF-type (double+epsilon)-or-nothing scenarios.
The way I currently think about is that a one-period problem is a very poor approximation (eg if I hit an absorbing barrier down the line the outcome is bad in EU terms, my future income stream is time-varying and uncertain and a function of my liquidity), therefore risk averse investing is still optimal, even when risk averse donating is not justified. Additionally (and hand-wavingly), I think that somewhat risk averse & diversified donations are also good because of beyond-quantifiable and moral uncertainty, diversification generating new future donation opportunities, multi-period-ness, and game theory around adverse selection & because it’s reasonable not to be completely altruistic.
What are other good ways to think about the coupled donation and investment problem?
How do people think about investing vs donating over time in practice?
When coupling investment and optimal donation problems, there is an apparent paradox if we consider:
* expected utility (EU) is pretty much linear in donations
* risk aversion with respect to own impact is non-altruistic
--> one should allocate everything to the best donation opportunity
* if there are positive EV (above risk free rate or above market beta or similar) investment opportunities one can invest and therefore increase the EU because EV translates linearly into EU
--> one should go all in on the best investment
--> seemingly there is a moral obligation to invest imprudently in order to donate with max EU
This is clearly wrong and suspiciously close to SBF-type (double+epsilon)-or-nothing scenarios.
The way I currently think about is that a one-period problem is a very poor approximation (eg if I hit an absorbing barrier down the line the outcome is bad in EU terms, my future income stream is time-varying and uncertain and a function of my liquidity), therefore risk averse investing is still optimal, even when risk averse donating is not justified.
Additionally (and hand-wavingly), I think that somewhat risk averse & diversified donations are also good because of beyond-quantifiable and moral uncertainty, diversification generating new future donation opportunities, multi-period-ness, and game theory around adverse selection & because it’s reasonable not to be completely altruistic.
What are other good ways to think about the coupled donation and investment problem?