Humans have a remarkable ability to categorize information and then quickly compare new data to prior experiences. This allows us to absorbed massive amounts of new data quickly in ways that computers are still unable to do. For instance if I show you a picture of a dog that you’ve never seen before, even a photo that is blurry or otherwise difficult to analyze, you will immediately recognize it as a dog based on your prior experiences.
This can be a trap.
This remarkable skill can prevent humans from recognizing the differences in things. We are often startled when individual do not stick closely to the broad categories in which we’ve stuck them. That’s why we get confused by democrats that are for an aggressive military, physicists who are in rock bands, or surfers who read the Economist.
I’ve been talking about efficient markets in philanthropy and I think that some people are making a number of assumptions that are not valid, although understandable, about my broader message. I’m going to quote from a number of recent comments and post my response:
Do you think, Sean, at all about civics, citizenship, about the nonprofit sector as “soul making,” or about how we as a people learn the difficult art of democracy?
I see nothing about efficient markets in philanthropy that is at odds with civic engagement. Efficient markets in philanthropy is about widely distributed, useful information. A more efficient market would allow for more philanthropic capital to flow to its best use as well as allow volunteers to find high engagement volunteer opportunities where they could truly “learn the difficult art of democracy” rather than stuff envelopes. Information efficiency and hyper-capitalism are entirely different ideas.
When did it become a choice for the sector between most efficiently solving problems and nurturing the higher callings of our community?…
This discussion seems to me to pit two histories of the independent sector against each other – the early 20th century philanthropy of Carnegie and Rockefeller and Ford against the 19th century of de Toqueville’s associations. We shouldn’t (nor do I think we can) do away with either legacy. Both are part of the nonprofit sector and both color it. The paradox is that they have contradictory aims. The first, the one which would benefit from an efficient market, see its own destruction as its ultimate end. The second, which rests on civic engagement, sees its own expansion as almost endlessly beneficial.
I see no contradiction between efficiently solving problems and nurturing the higher callings of our community. I think that is a false choice.
I also reject the comparison of efficient markets to the efficiency sought by early 20th century philanthropists. Efficiency as defined in the industrial age (highest number of widgets at lowest possible cost) is not the same as efficient information that allows people to direct their resources in ways that promote the most good (however each person defines “good”). The first type of efficiency is generally concerned with quantity while the second kind is more multidimensional and takes into account quality as well as value judgments.
The qualitative folks need to become comfortable with the numbers (they really have no choice in the nonprofit world today, frankly–and this is probably a good thing in the end, though there are growing pains!). And the metrics folks need to be comfortable with retaining some of those other forms of valuation (e.g., people recommending trusted nonprofits to each other, people giving because they are committed to a mission) that have been around, for good reason, for a long, long time.
Yes! Efficient markets certainly do not value quantitative information over qualitative. I’ve consistently rejected quantitative measures such as overhead expense ratios. Great Nonprofits (people recommending trusted nonprofits to each other) is certainly the type of tool that will make philanthropic markets more efficient.
All that efficient markets in philanthropy imply is that the resources of donors (money, time, knowledge, etc) are allocated to nonprofits so that the most “good” is created (with good being defined by individual donors following their own hearts). It would be The World We Want, with the emphasis on “we”. In a philanthropy with information efficiency, a donor could sit in an office crunching spreadsheets or head out in the wilderness to cut trails. Information efficiency empowers people to make informed decisions about the best way to further their values and beliefs; it does not dictate what sorts of actions are “best”. Only each individual can make that decision for themselves.