The GiveWell Blog

Broad market efficiency

It’s common to debate how “efficient” financial markets are. Broadly speaking, an “efficient” market is one in which the participants are quick to spot profit-making opportunities, so that prices quickly adjust to reflect available information and it’s very difficult for an outsider to “beat the market,” i.e., consistently earn outsized returns. (If one is interested in more details, I recommend searching for discussions of the “efficient-market hypothesis.”)

Not all opportunities to accomplish good are opportunities to make money. Yet I believe that it’s useful to use a similar concept in the world of philanthropy – to speak of a “broad market” in which people are rewarded (though not always financially) for accomplishing good, and in which we therefore have some reason to expect that (a) the “easiest” opportunities for accomplishing good will get funded and carried out without our help; (b) finding opportunities to do good that aren’t already funded will be challenging.

The question of how efficient the broad market is (and how its efficiency varies from domain to domain) seems to me like a crucial one, and it is a question that we are constantly debating and looking for new information on. It’s equivalent to the question of how effective the world as it exists today is at “scooping up opportunities to do good,” and thus how difficult we should expect it to be to find outstanding such opportunities. When we started GiveWell, the seemingly low quality of dialogue around giving led me to expect extremely low efficiency; over the years, I’ve substantially (though not overwhelmingly) raised our estimate of how much “efficiency” already exists.

The remainder of this post will:

  • Discuss why I’ve raised my estimate of “broad market efficiency” and what my current working view is.
  • Elaborate on why one’s estimate of “broad market efficiency” is important.

First, a point of clarification. I generally view “market efficiency” as a spectrum: the more efficient a particular market is, the higher the level of intensity and intelligence around finding good opportunities, and therefore the more intelligent and dedicated one will need to be in order to consistently “beat the market.” The most efficient markets can be consistently beaten only by the most talented/dedicated players, while the least efficient ones can be beaten with fairly little in the way of talent and dedication. This way of discussing market efficiency contrasts with the “Are markets efficient, yes or no?” approach that some others take to the question.

How efficient is the “broad market?”
When we started GiveWell, my basic picture of the world was that

  • For-profit markets are relatively efficient. Therefore, if there’s an opportunity to do good that’s also an opportunity to make money, it’s very likely that someone will seize on this opportunity relatively quickly.
  • Nonprofits accomplish good as well, but in the nonprofit world, funding almost exclusively chases “good stories” rather than good ideas. Therefore, there ought to be many opportunities to accomplish enormous amounts of good via nonprofit activities with a strong analytical case but no competitively compelling emotional pitch.

I still hold both these views to a degree, but several observations have complicated the picture for me.

  • As we recently wrote, it appears that the most proven cost-effective interventions are often able to attract funding from major funders. While I do believe we’ve found some places in which more money is needed to deliver more proven cost-effective interventions, doing so has been far more difficult than I expected.And while I believe there exist good opportunities to fund more research and strengthen health systems (which could lead to more opportunities to fund delivery of proven cost-effective interventions), I also have not seen a large amount of obvious low-hanging fruit (outstanding, unfunded giving opportunities) in these areas. In particular, many of the interventions whose effects are easiest to study are the ones that have already been fairly well studied; to create good research on other interventions could be much more difficult. I believe there are exceptions to this pattern, but that it does hold as a general pattern.
  • In 2012, we developed an interest in meta-research that grew out of our experiences reviewing evidence, and we noted at the time that we couldn’t identify any major foundations working in this area (based on our review of major foundations). We saw this as a promising but potentially ignored area. However, the more we investigated it and got involved in it, the more we saw that there are already many movements afoot that can be categorized as “meta-research” – and several major funders that are interested specifically in this area. Furthermore, it often appears to be the case that “meta-research projects” get funded by funders who don’t explicitly focus on “meta-research,” but instead focus on the field in question. (A future update will give more details on this.)The other funders focused on meta-research are roughly as new to the area as we are; we have uncovered some ideas that may qualify as “promising and un-funded”; and I still have the intuition that this is an extremely promising and under-resourced area. But it’s instructive that our best guess for a “promising but ignored” area turned out to have a non-negligible amount of interest from funders, once we looked more closely.
  • We’ve also seen various “global catastrophic risks” highlighted to us as causes that are highly likely to be neglected, because the scenarios in question are highly “farfetched” and low-probability, and philanthropic investments are unlikely to pay off in any tangible way. Thus, it seems that funding these causes might require a highly analytical and genuinely altruistic bent. We’ve done some light investigation of global catastrophic risks, and have found some substantial activity on some of the more “farfetched” ones. For example, on asteroid impacts, tens of millions of dollars are being spent on asteroid detection and the expected lives lost due to such impacts has reached a fairly low level. On threats from epidemics, bioterrorism and other biological threats, the Alfred P. Sloan Foundation ran a program (archived link) for several years in this area, and reports having closed the program after seeing substantial increases in government funding (as a side note, we don’t find its causal attribution compelling): 
      “Sloan’s Biosecurity Program has been very successful in bringing attention to the issues and challenges posed by biological threats. When our program began in 2000, the US government funding for strictly biodefense was approximately $50 million. The FY2010 budget is $1.09 billion.”



  • We’ve generally struggled to find proposals for projects that are fully fleshed out and immediately compelling, yet un-funded. We believe this is largely because of the dynamics of the philanthropic sector in which proposals tend to be written only after there is strong interest from a funder, but in a less efficient “broad market” we’d have expected to find some strong, exhaustively argued yet un-funded proposals by now.
  • In general, in interacting with major foundations (such as the Bill and Melinda Gates Foundation, Hewlett Foundation, CIFF and Open Society Foundations), we’ve encountered many program officers whom we perceive as well-informed, genuinely altruistic, and relatively analytical in their approach. It’s difficult to evaluate the quality of these people’s work, but they certainly don’t fit the stereotype of the “story-oriented donor.”

In general, it seems nearly impossible to find a promising area or idea that is completely ignored (though many may be underfunded relative to other areas and ideas).

It seems to me that there is a real sense in which people are “rewarded” nonfinancially for working on something with high altruistic value – whether through recognition from others, through pride in doing well at the job they’ve been hired for, or of course through altruism – as well as a real sense in which people are drawn toward areas that they perceive as neglected (foundation staff have cited the latter factor to us in many discussions). Even without any particular person taking a bird’s-eye view of the philanthropic world and making analytical, strategic calculations to find the most under-explored causes, an ecosystem with a large number of people who have various drives toward altruism and toward working on what’s neglected can be expected to produce some degree of “broad market efficiency” – a tendency to find and execute on the most outstanding and neglected ideas.

I am not saying that “all the good giving opportunities are taken” or that “philanthropic capital is allocated as well as it could be” – I very much don’t believe that. I believe that a great deal of giving is done with very little thought and goes to causes that are far inferior to the best ones out there; I believe that strategic cause selection is itself a neglected approach, and that it will lead to far more impact than we could achieve otherwise. Even if (as isn’t necessarily the case) the best $10 million worth of funding opportunities for a given cause are already funded, funding the next $10 million down in the most promising causes (as opposed to causes chosen with little reflection) could have enormous value. In addition, I believe that looking at existing giving opportunities doesn’t tell you the full story about a cause’s potential (as discussed previously), and raising the profile of the more important causes could generate outstanding giving opportunities that haven’t yet been surfaced.

What I no longer believe is that there’s any easy way to tell which areas are under-funded. All it takes is one or two idiosyncratic major funders to turn a cause area from under-funded to over-funded or appropriately funded. Thus, the mere fact that a cause is “wonky” (strong from an analytical perspective, but not from a storytelling perspective) or “wacky” (controversial, farfetched or otherwise unappealing to conventionally minded people) doesn’t guarantee that it will be neglected. When it comes to assessing what areas are neglected, there’s no substitute for doing the legwork of figuring out who’s working on them.

Why one’s view of “broad market efficiency” matters
In theory, it would be ideal to examine all possible giving opportunities and compare the “expected good accomplished” for each. In practice, it’s important to have good rules for prioritizing which areas and projects to investigate further. And having a view on “broad market efficiency” is important for such prioritization. Our view on “broad market efficiency” affects (a) how easy we expect it to be to find good giving opportunities in a given cause (and thus how much effort we expect to put in before having a good idea of what’s available); (b) what sort of claims about giving opportunities we consider highly plausible vs. which will immediately raise our skepticism that a piece of the picture is missing; (c) what sorts of giving opportunities are outstanding enough, in the scheme of things, for us to prioritize them.

If we expected extremely minimal “broad market efficiency,” we might be looking for projects that fit just about all the criteria one could ask for – strong track record, strong upside, strong people, etc. – and we’d deprioritize causes in which these projects didn’t quickly emerge. If we expected extremely strong “broad market efficiency,” we might place high emphasis on our personal interests and experiences, reasoning that these would be the areas in which we’d be most likely to “beat the market.” Our current view is in between the two extremes. Our intuition is that some causes are extremely under-funded relative to others, and we expect strategic cause selection to have major payoffs. (Note that while we have raised our estimate of “broad market efficiency” we’ve also become more confident that strategic cause selection is extremely rare, perhaps even nonexistent, in the philanthropic world.) On the other hand, we expect exploring a given cause to take a good deal of legwork and learning, and we’re inherently suspicious of projects that look “too good to be true.”

Another reason one’s view of “broad market efficiency” matters is it represents one mechanism for what I sometimes term the “fungibility of good” – the idea that making progress on one problem often leads to progress on other problems. For example, reducing the burden of malaria may make it more likely (depending on the degree of broad market efficiency) that other philanthropists shift from addressing malaria to addressing other problems. Thus, even if cause X is more important than cause Y, making progress on cause Y may cause other philanthropists to reallocate their giving away from cause Y and toward cause X, and may thus have some value for cause X.

The “fungibility of good” is one possible contributor to “regression to the mean” in philanthropic opportunities, and one possible justification for placing weight on tractability (what one can accomplish within a cause) and not just importance (the value of progress on a cause).


  • Twan van Laarhoven on May 2, 2013 at 2:05 pm said:

    Maybe what gives you and me a bad impression of the philanthropy market is not underfunding of high impact projects, but overfunding of low impact ones.

    For example, there are charities dedicated to making a few people in western countries happier. While this is a worthwhile goal, it just doesn’t compare to saving lives.

  • Ian Turner on May 3, 2013 at 9:05 am said:

    It sounds to me like your developing hypothesis is that the proven cost-effective giving opportunities are mostly taken, so that the best path forward may be to try to develop new giving opportunities, rather than fund existing ones. Is that right?

  • Brian Tomasik on May 4, 2013 at 9:32 pm said:

    Thanks for the post, Holden. The phrase “broad market efficiency” might give people a false impression that “the best causes are taken, so it doesn’t really matter where you donate.” The post took pains to explain that this wasn’t the case, but casual readers may miss those parts.

    The fact that for any given promising cause, there exist people working on it isn’t so surprising. What matters is whether that cause is overfunded. Even outside of charity, if you pick a given topic, probably someone in the world has looked at it. That doesn’t mean it has been studied enough.

    Efficiency in the realm of charity is inherently less plausible than in financial markets because in charity there’s not a common unit of what “good” means. Different people have different ideas about what’s important. Indeed, one man’s good may be another man’s bad (e.g., abortion, gun control, extinction risks). If you have highly unusual values, the charity market should be less efficient for you. For example, few people value insect suffering nearly on par with the suffering of large animals, so someone who did would face an unusual landscape in which to evaluate causes.

  • Holden on May 6, 2013 at 1:50 pm said:

    Brian, thanks for the comment. A few reactions:

    • I don’t think “broad market efficiency” is a common phrase or one with a clear meaning, so I’m not worried about the impression given by the title of the post.
    • You state, “The fact that for any given promising cause, there exist people working on it isn’t so surprising.” I’m not sure I agree with that, or at least, I’m not sure I agree with the stronger version of that statement that the post supports – not only do there exist people working on each promising cause we’ve looked into, but there exist major funders working on each.

      One could imagine a world in which people naturally/instinctively follow what others think is important, such that only a systematic review of charitable causes can reveal all the promising ones. If, despite the presence of no such systematic review (as far as we can tell) every promising cause has someone working on it, this implies that there is some other force that systematically pushes people into causes that are promising but ignored. This same force may also push people into causes that are promising but drastically underfunded. Understanding the strength of this force is important for what we’re doing.

    • I agree that the broad market looks less efficient for one with unusual values. However, I also don’t see introspection of one’s values as perfectly reliable. When it seems that one sees extremely promising, totally ignored opportunities, and the explanation for this phenomenon turns out to be an extreme divergence in values between the rest of the world and oneself, this is a reason to question and doubt one’s values. Not an overwhelming reason, but a reason.
  • Brian Tomasik on May 6, 2013 at 2:16 pm said:

    I agree with those points. 🙂

    It’s up to an individual to decide how much to doubt her values upon finding that they diverge from those of most people. Being troubled by this assumes placing value on how other (similar) people feel, and the weird person may not care about how others feel as much as other people tend to care about how others feel. Anyway, this is a discussion for another place and time.

  • Holden on May 6, 2013 at 2:20 pm said:

    Brian, to clarify, I’m not talking about placing moral weight on the feelings of others. I’m talking about placing epistemic weight on it, in light of the fact that introspection has limited reliability.

  • Brian Tomasik on May 6, 2013 at 2:27 pm said:

    That makes sense. How strong the update is depends on how closely one expects others to track the same target as oneself. If values are extremely detailed and random, the update from seeing others disagreeing is smaller than if values are more convergent.

  • Holden on May 6, 2013 at 3:04 pm said:

    In response to Ian: that’s not our hypothesis. The sort of “efficiency” discussed in this post covers “creating” organizations as well as funding them, and it’s far from perfect efficiency. I still see “creating” organizations as being at the far extreme of active funding, to be avoided if possible, and we’re still looking for causes and organizations that seem underfunded relative to others (even if not truly “neglected”).

  • Kris Zyp on May 6, 2013 at 5:30 pm said:

    I’ve been pondering if the principle of market efficiency actually speaks to the question you have raised before about whether it is better to invest (for monetary returns) now and give later, or give now. If the market efficiency spans profit and non-profit, would it be feasible to suggest that those that have higher than average knowledge in stocks (or some other monetary investment) are better off investing in stocks and giving later, whereas those that have a higher relative knowledge of development economics (many GiveWell readers, I’d guess), are better off giving now because they are more likely to give to projects with high returns. (Also, even if you had an equal knowledge of development and stocks, that equates to a much higher *relative* knowledge of development simply because the average knowledge is so much lower, would suggest giving now). Do you think that is a reasonable intuition?

  • Holden on May 7, 2013 at 2:32 pm said:

    Kris, I do think there is something to the idea that people should follow their comparative advantage. If you have the rare trait of being able to outperform financial markets, there is an argument for using marginal dollars to do this (and generate more wealth) before donating, especially if you are simultaneously becoming a more informed donor at the same time. I should note, though, that I think the property of being able to truly outperform financial markets is a very rare one; I generally associate it with top investment firms rather than with individuals.

  • Kris Zyp on May 7, 2013 at 2:50 pm said:

    I certainly agree that is rare, and for me personally, I definitely would claim my comparative advantage is in charity/development over anything else; and I have been heavily considering that as I weigh whether to invest my tax refund into the seemingly timely (AFAICT) rental/real estate market vs investing in charity (probably IPA), where I have much more expertise.

    Anyway, thank you for all of your great research and insights, certainly appreciate this site.

  • Adrian Meli on June 3, 2013 at 5:01 pm said:

    Love your blog. I find the introspective analysis on your changing thoughts and ideas particularly interesting. The fungibility of good question/idea seems to pass the smell test as well. Please keep up the thoughtful posts-I enjoy reading them.

  • Timothy Underwood on November 15, 2013 at 1:50 am said:

    Perhaps the best way to put it is that international aid is enormously underfunded. But the people at the Bill and Melinda Gates Foundation are good enough at their jobs that you probably can’t find a giving opportunity that is an order of magnitude better than what they are already funding.

    However it is easy to find giving opportunities that will do at least 1-2 orders of magnitude more good than spending the money on yourself.

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