Monday, October 16, 2006

What's wrong with this reasoning?

Tim Harford, in an otherwise worthwhile article about the economic realities of charity, seriously drops the logical ball when he writes:

"Even the way we choose to dole out cash betrays our true motives. Someone with $100 to give away and a world full of worthy causes should choose the worthiest and write the check. We don't. Instead, we give $5 for a LiveStrong bracelet, pledge $25 to Save the Children, another $25 to AIDS research, and so on. But $25 is not going to find a cure for AIDS. Either it's the best cause and deserves the entire $100, or it's not and some other cause does. The scattershot approach simply proves that we're more interested in feeling good than doing good.

Many people are unconvinced by this argument...because they are used to diversifying their financial investments (a bit of Google stock and a bit of Exxon, too) and varying their choices (vanilla ice cream AND bananas). But those instincts are selfish: They are not intended to benefit both Google and Exxon, nor both the ice-cream company and the banana growers. With charity, the logic is different, and a truly selfless donor would bite the bullet and put his entire donation behind one cause. That we find that so hard to imagine is just one more indication of how hard it is for us to think ourselves into a truly selfless view of the world.

How many logical flaws can you find in this reasoning? I count at least three:

1. The argument assumes that there is such a thing as a "best choice" when it comes to charity, and of course there isn't. The value of the work done by charitable orgnizations is incommensurate. How do you compare the value of an organization that works to save the oceans with one that works to save the rain forests or find a cure for cancer?

2. Even assuming that there is such a thing as a single best choice, the argument assumes that you know what the best choice is with absolute certainty. If you knew which stock would perform best there would be no need for diversification. Likewise, because you can't know which charity is "best" diversification makes sense to hedge against that uncertainty.

3. Even if you assume that there is a best choice and you know what it is, the argument assumes that the incremental value of money is constant. In other words, the argument assumes that the giving of money does not change the relative ranking of organizations. But of course that's not true because of the law of diminshing returns. At some point the relative effectiveness (and hence value) of additional resources begins to decline.

There are probably others. It's a shame that the editorial staff at Slate, which is usually pretty good about filtering out complete bogosity, dropped the ball so hard in this case.


coby said...

He also states But $25 is not going to find a cure for AIDS as if $100 is, which is pretty thin reasoning (ok, worthless).

But your point 2 is not a good criticism because he is tossing out the logic behind investing anyway as it is selfishly motivated.

Strange arguments to make though, you're right about that...

Ron said...

he is tossing out the logic behind investing anyway as it is selfishly motivated

No, he's not. He's saying that because people diversify their investments and their motives in that case are selfish, that their motives must therefore be selfish whenever they diversify. But this is false. Diversification is an effective hedge against uncertainty regardless of the underlying motive.

Here's an example: imagine you have $100 to give away to ten panhandlers. You know that only one of the ten is truly needy, but you don't know which one. You can give the $100 to a random panhandler (and have a 1 in 10 chance of doing some good) or give $10 to each panhandler and have a 100% chance of doing (presumably less) good. Which strategy is "better"?

Or consider this: suppose you know that all ten are truly needy. If you give one $10 he'll buy a meal with it, and if you give one $100 he'll buy a meal and a night in a nearby fleabag motel. Imagine that one of the panhandlers is in poor health and looks like he might not survive if he spends another night on the street while the others are in reasonably good health (except for being hungry). Do you give the sick one the whole $100 and let the other nine go hungry, or do you feed them all and make the sick one take his chances on surviving the night?

And those are the easy cases!