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.
5 Comments
I see I failed to spend enough time making explaining my conclusions, because I don’t really disagree with you, Sean.
My point was that an organization that seeks to end poverty or cure a disease ideally wants to be put out of business, right? If we end find a cure for AIDS, there will be a whole group of organizations that would not need to exist anymore. And that’d be a good thing. While I agree that a comparison between the early 20th century and current definitions of efficiency does more harm than good, I do think there is a shared desire to seek solutions, not just exist forever to provide charity.
At the other end of the spectrum, are the bowling leagues, debate societies, community theater, and the Friends of the Library which will NEVER succeed by being put out of business. These to me are the organizations that jump to mind when talking about nonprofits as democratic instituions that we hope proliferate endlessly.
What I think my final sentences tried (but apparently failed to convey) is that I think we fail when we try to see social problems as “solvable” in anyway without building up society and community. Experiences in community development and research on social capital (a la Putnam) provide ample evidence that good community outcomes are tied-up with stong communities. So success in nonprofits and philanthropy will have to be both.
I think you and I do agree. What I was trying to push back on was your suggestion that Phil Cubeta and I were on opposite sides of a debate. That the discussion was about efficiency vs community. Your comments transcended that frame and suggested that both Phil and I were correct.
What I tried to put forward in this debate is that I don’t see Phil on the other side of the table in this debate. I think he sees it that way, but to my way of thinking, efficient information in philanthropy would lead to flourishing community involvement. I think people naturally want to be involved in their community and making it easier to follow their passion (by making information more available) would foster more community involvement.
I don’t want to get stuck within the frame of “business metrics guy”. That’s an old frame. The business frame of looking at philanthropy is useful, but it is incomplete.
This is an effective explanation of your point of view, Sean. And convincing. It puts the metrics discussion in a larger context that can only help people (me included) understand it better.
Let me offer one tweak to your conversation with young staffer. You said a few times above that individuals need to decide what “good” is for them, and then pursue that good through informed action. But I’d suggest that one role of involvement in philanthropic action (in particular the civic engagement side of it) is to help us figure out what “good” is, by talking to others about their/our visions of the good, and of course, by seeking information that helps us define the good.
So I guess what I’m saying is that information is not just useful once we have decided what the “public good” (this is how I prefer to talk about it) is that we want to pursue with our philanthropy. Information is useful in helping us define our vision of the public good – something we often do collectively, not just individually.
P.S. I don’t think you disagree with the point I just raised; I’m just adding it to the conversation. Seems like it strengthens your argument, in fact.
Also, let me offer giving circles as a good example of this idea of information being used effectively (and collectively) to define the public good AND to then determine the efficient ways to advance that good. Giving circles (we all know the model, like Social Venture Partners or SV2 or others) seek out information on community needs and appropriate goals for their giving (their definition of the good), as well as information on which approaches to addressing needs or meeting goals are the best (most efficient) investments.
Michael, love your point. Information efficiency is so low in the philanthropic sector that people do not know what they don’t know. Clients tell me all the time they want to do X, but after discussions and connecting them to various people with varying knowledge sets, the clients often realize they want to do Y.
In financial markets, there is a supposed “curve” that describes the risk/return trade off available to investors. I think that in philanthropy, that curve would be a multi dimensional curve and that currently most people have no idea where on the various axes they want to be located or even that the curve exists.
We all need help figuring out where we want to go in addition to how to get there.