Having been a hedge fund manager and supporter of EA for many years I think this is really good write up including legal and practical considerations. I think there is no easy solution except working hard to diversify the donor base, and perhaps for EA orgs not to take on even more correlated risks unless there are very good reasons to do so.
LukeDing
Karma: 810
I think the case of OP and SBF are very different.Alameda was set up with a lot of help from EA and expected to donate a lot if not most to EA causes. Whereas Dustin made his wealth without help from EA.
Hi Gideon, do you mean me? I have very very little detailed knowledge of xrisk and do not believe my risk management expertise would be relevant. But happy to chat. May be you can pm me?
I empathise with this from my own experience having been quite actively involved in EA for 10 years and within my own area of expertise which is finance and investment, risk management and to a lesser extent governance ( as a senior partner and risk committee member of one the largest hedge fund in Europe), that sometimes we ignore ‘experts’ over people who are more value aligned.
It doesn’t mean I believe we should always defer to ‘experts’. Sometimes a fresh perspective is useful to explore and maximise potential upside , but sometimes ‘experts’ are useful in minimising downside risks that people with less experience may not be aware of, and also save time and effort in reinventing existing best practises upon which improvements could be made.
I guess it is a balance between the two which varies with the context, but more likely perhaps in areas such as operation, legal and compliance, financial risk management and probably others.
How much professional advice on the cost and resource requirements on refurbishing and maintaining the property did Owen obtain? I note this is a Grade 1 listed building.
This is quite interesting and reminds me of a short option position as a previous hedge fund manager—you earn time decay or option premium when things are going well or stable, and then once in a while you take a big hit (and a lot of of people/orgs do not survive the hit). This is not a strategy I follow from a risk adjusted return point of view on a longer term perspective. I would not like to be short put option but rather be long call option and try to minimise my time decay or option premium. The latter is more work and time consuming but I have managed to construct very large option structured positions with almost no time decay as a hedge fund manager. In EA terms some of the ways I would like to structure long call options on EA whilst minimising risks would be look for strong founders and team, neglected with large convex upside, tractable and cost effective even with base case delivery (GWWC, Founders Pledge and Longview were good examples of this), and continue to fund promising ones until other funders come in.
As a general observation I think EA overemphasise expected return and not enough on risk adjusted return, especially when in some cases some sensible risk management can reduce risk a lot without reducing expected return much. (eg ensuring we have experienced operational, legal, regulatory and risk management expertises). This may have something to do with our very long impact time horizons and EAs preference to work things out from base.
I also like to emphasise that it does not always have to be bad actors, but could also be people acting outside their level of expertise and/or competence in good faith. And trust perhaps like market cycles can be oversupplied at times and in certain areas and under supplied at other times and areas.
I agree and I am also concerned about this. I have witnessed this many times. I do think there are tremendous merits in vigorously thinking from first principal on some subject matters. But others such as risk management and regulation for example do require experise as we have now seen in the case of FTX.
Thanks for the summary and repost. I do think that this saga also has lessons for the EA community. I have seen many incidences whereby we overemphasise EA alignment over subject matter expertise , especially when subject expertise is more practical and mission critical, for example in operation and risk management. This supports your comment on ’This might leave the remaining group less able to identify weaknesses within group beliefs or course-correct, or “steer”.
I also think that advisory board could be a good way to get advice from experienced people who may not have the time or want to take the responsibility of being a trustee.
I think this is a great initiative. It is great to see what you are looking for and why and try to bring on more relevant professional expertise. I hope more EA organisations follow your example.
Thank you Michelle for such a compassionate post.
I think this is a very helpful post.
I think some of the larger, systemically important organisations should either have a balance of trustees and/or a board of advisors who have relevant mission critical experiences such as risk management, legal and compliance, depending on the nature of the organisation. I appreciate senior executives and trustees in these organisations do seek such advice; but often it is too opaque who they consult and which area the advice covers; and there could be a lack of accountability and risk of the advisors lacking sufficient knowledge themselves.
I have raised this directly a number of years ago but perhaps still inadequate. As noted by others this becomes more important as we get bigger.
Ps I don’t post much and not as accurate with my choice of words as other forum users.
“I believe I am a reflection, like the moon on water. When you see me, and I try to be a good person, you see yourself.” In the film Kundun on the life of His Holiness the Dalai Lama.
Great thanks for this and the link. I am still trying to understand this more as it evolves. I guess as the monitoring and control is now much stronger hopefully Ro will come down also.
https://www.worldometers.info/coronavirus/
I find the analysis from this link very interesting. It suggests that Ro is higher than initially estimated at 3-4 (rather than 1.4-2.5 by WHO) but the national China mortality rate drops to 0.3% if the province of Hubei is excluded (the reported mortality rate of Wuhan alone is 5.5%). This would be consistent with the theory that the number of cases are underreported in Wuhan, due to a shortage of testing capacity and perhaps under reporting. A recent Lancet report by Professor Gabriel Leung from University of Hong Kong https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext estimates 76,000 cases in Wuhan as of Jan 25th based on a Ro of 2.68, more than 30x reported, which would put the mortality rate at well under 0.5%.
This suggests the pandemic could be more difficult to control than expected but mortality rate is also much lower (perhaps in the region of 3x flu).
This may also mean the main damage could be through economic impact.
Hi Peter, thanks for such a detailed post. I think there could be a misunderstanding in Founders Pledge numbers as their pledge numbers are growing very quickly and significantly higher than in 2015. (They have also been making great effort in increasing the impact of deployment including into far future.)
Also in the commitment section there is Effective Giving which is a relatively new and making significant progress.
These could point to a somewhat different picture in the commitment section to the one described above.
Perhaps we can review this and provide an update if necessary?
Thanks for that. As you mentioned in your guide I only recently realised that as I submit self assement return, I don’t need to donate by April 6 tax year end, but can do so before I submit the self assement return in following January which gives me an extra 9 months to work out how much I can donate.
Thanks for the question and the opportunity to clarify (I think I may have inadvertently overemphasised the negative potentials in my post.)
Yes there is a feedback loop, but it doesn’t have to result in a correction.
I think cryptocurrencies and bitcoin could be a good example. You have a new product with a small group of users and uses initially. The user base grows and due to limited increase in supply by design the price rises. As the total value of bitcoin in circulation rises the liquidity or the ability to execute larger transactions also rises, and the number of services accepting the currency rises, and there are more providers providing new ways to access the currency; all these generate more demand which causes the price to rise even further, and so on.. But what was just described is a feedback mechanism, that in itself does not suggest whether a correction should be due or not. Of course at some point a correction could be due if the feedback loop operates too far. I think that’s why Soros said in 2009 “When I see a bubble forming, I rush in to buy” (I think he meant feedback loop when he said ’bubble”).
What I was speculating is whether there are more chances for anti-consensual views to turn out to be correct in a fast evolving system.
I hate posting as I worry a lot about saying ill-considered or trivial things. But in the spirit of Eliezer’s post I will have a go.
This post reminds me of some of my experiences, and I really like the $20 note on the floor analogy.
I was a derivatives trader for over 20 years and was last at a large hedge fund. In the early days I was managing new types of currency options at a relatively sleepy British investment bank focusing on servicing clients. After a while I thought some of these options were underpriced by the market due to inadequacy of the models. I wanted to take proprietary positions by buying these options from other banks instead of selling them to clients, but management initially resisted on the lines of why do I think all the other banks are wrong especially some of them are much larger and supposed to be much more sophisticated. But after a year or so I did manage to buy these options and made quite a lot of money which helped to set me on my career in trading.
What I noticed over the years is that these anomalies tend to happen and persist when
There is a new product (so there is less existing expertise to start with)
The demand for the product is growing very quickly (so there is a rapid rise of less price sensitive and less informed participants). This also generates complacency as the product providers are making easy profits and vested interests could build in not disturbing the system.
Extra potency may arise if the product is important enough to affect the market or indeed the society it operates in creating a feedback loop (what George Soros calls reflexivity). The development of credit derivatives and subsequent bust could be a devastating example of this. And perhaps ‘the Big Short’ is a good illustration of Eliezer’s points.
Or you have an existing product but the market in which it operates in is changing rapidly eg. when OPEC failed to hold oil price above $80 in 2014 in face of rapid decline in alternative energy costs.
I wonder if the above observations could be applied more generally according to Eliezer’s ideas. Perhaps there are more opportunities to ‘find real $20 on the floor’ when the above conditions are present. Cryptocurrencies and blockchain for example? And in other areas undergoing rapid changes.
Great point. And also for organisations with international presence to be careful with exchange rate risks and match currency holdings with expected currency expenses unless there are good reasons not to, sounds really basic but I have seen this overlooked even with large well run organisations.