Giving What We Can is looking to build more of an 'institutional view' on various aspects of effective giving. Something we've recently decided to more explicitly push for is donating via a fund. I'm cross-posting our page outlining why we recommend funds with hopes of getting feedback and questions from forum users :).
Funds are a relatively new way for donors to coordinate their giving to maximise their impact. This page outlines what a fund is, and why Giving What We Can generally recommends donating to funds rather than directly to individual charities.
How do funds work?
Funds allow donors to give together, as a community. Rather than each individual giving to a specific charity, donating via a fund pools their donations so that expert grantmakers and evaluators can direct those funds as cost-effectively as possible.
Using a fund is similar to using an actively managed investment fund instead of trying to pick individual stocks to invest in: in both cases, you let experts decide what to do with your money. This analogy helps explain the structure of a charitable fund, but it likely understates its benefits. This is because:
- Investment funds regularly take a management fee (hedge funds, for example, typically take 1–4% of invested funds each year). Whereas the charitable funds we recommend don’t take any fees for their work.
- According to the efficient-market hypothesis you should expect that any given stock costs roughly what it should given the best available information. If true, that would mean there’s not much room for experts to pick better stocks than you could (even if you picked at random!). Whereas the best charity can be at least 10 times better than a typical charity even within the same area. This means that there is substantial room for experts to make sure your donations do far more good than they otherwise would.
As we’ll see next, there are other advantages of funds — both for the donor, and the charity.
Advantages of funds
Funds make it easier to ensure that effective organisations receive the funding they need, when they need it.
Donating through an expert-led fund is often a much more effective way to support a cause than donating individually — even if you and the fund support the same organisations. This is because individual donors aren’t able to easily coordinate with each other, nor the organisations they support. Whereas if they donate together through a fund, the fund manager can:
- Learn how much funding the organisation needs.
- Provide funding when the organisation needs it.
- Monitor how that funding is used.
- Work with and incentivise organisations to be even more impactful.
As a result, donors might prefer funds because their money can often be allocated more efficiently and effectively.
- But organisations also often benefit from the fund model. This is because:
- Funds can provide a consistent and reliable stream of funding for effective organisations to carry out their work, whereas relying on individual donations can often be a challenge.
- Fund managers can provide support in addition to funding. They often give advice and share key connections that can help the organisation succeed.
In general, because a fund pools the resources of multiple donors, and because a fund manager can spend more time investigating and supporting organisations than individual donors can, funds are often a highly cost-effective donation option.
When donating to funds may not be the best option
While we think most donors should give to funds, there are some cases where it might not make sense. This would be if:
- You think you can find more cost-effective donation opportunities by yourself. For example, you may have substantial expertise in a high-impact cause you want to support, or you might not be able to find a fund that aligns with your values.
- You have unique access to donation opportunities. There are often donation opportunities that funds can’t support, even if the fund managers thought they were extremely cost-effective. For example, none of the funds we recommend can directly donate to a political party, and you might think that the best donation opportunity is to fund the political campaign of someone who you think will be highly effective if elected.
Bottom-line: should you give to a charitable fund?
For most donors, we think the answer is yes.
The point of charity is to help others, and if you want your donations to be directed to the most effective organisations, donating via a charitable fund led by expert evaluators is likely the best way to do this.
If you'd like to give to a fund, we recently announced Giving What We Can's recommended funds (and charities) which you can find on our website.
These funds are chosen because they're ran by our trusted evaluators. We're planning on evaluating evaluators next year so that we and other organisations have a stronger basis behind these sorts of recommendations.
If someone is strongly considering donating to a charitable fund, I think they should usually instead participate in a donor lottery up to say 5-10% of the annual money moved by that fund. If they win, they can spend more time deciding how to give (whether that means giving to the fund that they were considering, giving to a different fund, changing cause areas, supporting a charity directly, participating in a larger lottery, saving in a donor-advised fund, or doing something altogether different).
I'm curious how you feel about that advice. Obviously some donors won't be comfortable with the idea of a donor lottery and they can continue to give directly. I personally remain very excited about the idea of donor lotteries and think it would be healthy for the EA community to use more extensively.
For example, I think it would be healthy if funds were accountable to a smaller number of randomly selected donors who had the time to investigate more deeply, rather than spending <10% as much time and being more likely to pick based on a quick skim of fund materials and advertising/social dynamics/etc. And it seems like there's no way to escape from that regress by having GWWC evaluate evaluators, since then the donor must evaluate GWWC's evaluations. From this perspective a donor lottery is really like a "free lunch" that's hard to get in other ways.
There is also one major way in which it overstates the benefits: for financial investments it is very valuable to diversify across at least dozens of firms and a few asset classes. Evaluating so many investments would take a huge amount of time, and so even if evaluating individual investments was easier than evaluating funds you'd still probably want to invest in a fund. In contrast, a charitable donor needs to find just one charity that they want to support, and so the case for evaluators really rests on it being easier to evaluate an evaluator than to evaluate a charity.
That comparison is most favorable for organizations like GiveWell, whose main role is to produce reasoning that would clearly be valuable to an individual donor trying to evaluate a charity. But "evaluate funds" vs "evaluate charities" is more apples-to-apples when you are primarily relying on funder judgment, since you could just as well rely on the judgment of people who run the charities they support.
(However the point about charities preferring to engage with fewer big funders is still very relevant and suggests using either a fund or a lottery.)
Thanks for the thoughtful comment.
I think there’s a strong theoretical case in favour of donation lotteries — Giving What We Can just announced our 2022/2023 lottery is open!
I see the case in favour of donation lotteries as relying on some premises that are often, but not always true:
Some of these don’t hold for many donors, and there are some additional considerations which undermine the value of lotteries:
Overall, I think if Giving What We Can changed its default recommendation from funds to donation lotteries, we’d be having less impact.
Though we see funds as the best default option, we would like to provide additional guidance on when it makes sense to choose other options. I’ve made a small edit to the version of this post on our website to acknowledge that donor lotteries could be a compelling alternative. My sense is that donor lotteries would be a better option than funds for someone who:
I also have a few thoughts about this comment in particular:
Speaking personally, I’d also prefer fewer donors conducting deeper investigations of funds than a larger number conducting more shallow investigations. I think this is a very good consideration in favour of donation lotteries.
Speaking on behalf of Giving What We Can: though our work “evaluating the evaluators” will inform our recommended funds and charities (to provide a stronger basis for our recommendations) we are also motivated to make it easier for donors to choose which evaluators and funds they rely on by providing resources on the values implicit in their methodology + pointing to some potential strengths/weaknesses of their methodology.
Put another way, our vision for next year is to help:
Thanks for this great response.
Im really curious about your work to give donors the tools to choose between evaluators based on their values.
One big difference between investment funds and charitable funds is that lay people can at least evaluate funds on some basic metrics such as market returns versus a benchmark. Both for accountability and for the purpose of aligning charity fund/ evaluator chooses with values, some further tooling seems valuable.
Do you have any comments on the accountability piece?
Finally, I would add another downside of lotteries, which is that donors need to trust that most participants will have similar values to them, and the knowledge / skills to do research. This trust seems easier to grant to evaluators or funds.
I agree that providing accountability to evaluators is a real challenge. I don't have much more to add right now, other than we really hope our work will help!
As for your last point -- at least from a simple expected-value perspective, I'm not sure you should care too much about other lottery participant's values. The idea is that by donating to the lotter, you're not increasing the expected amount of money other participants influence. Of course, there could be other reasons to not want to participate in lotteries with people whose values you don't share.
Re: value alignment, that's a great point, it looks like I fell victim to a bit of loss aversion! (I imagine I'm not alone)