Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Rethink Priorities' Portfolio Builder Tool, published by arvomm on July 10, 2024 on The Effective Altruism Forum.

Link to the tool:

https://portfolio.rethinkpriorities.org

2-min Introductory Video:

5-min Tool Features Walkthrough Video:

Executive Summary

This post introduces Rethink Priorities' Portfolio Builder Tool. This interactive tool is designed to help individuals and organizations optimize their philanthropic giving portfolios by evaluating the cost-effectiveness of different cause areas. It leverages empirical estimates, simplified cost curves, and tailored decision-theoretic assumptions to help users explore optimal portfolio compositions.

The Portfolio Builder Tool has two primary functions: (1) finding the optimal portfolio based on user-defined parameters, and (2) assessing the value of a specified portfolio under different decision procedures.

The tool integrates cost-effectiveness analysis with decision-making models like Expected Value (EV), Difference-Making Risk Averse Expected Utility (DMREU), Weighted-Linear Utility Theory (WLU), and Tails-Excluded EV, enabling philanthropists to explore the impact of various combinations of empirical assumptions and risk attitudes.

If the user is uncertain about decision procedures, the tool offers a way to build portfolios given a distribution of credences across decision procedures.

The tool's insights reveal patterns that could significantly influence funding strategies. For example, while EV maximization can favor prioritizing existential risk mitigation, even slight risk aversion tends to shift allocations toward Global Health and Animal Welfare. By calibrating different inputs, users can refine their understanding of portfolio optimization, uncovering trends that should inform resource allocation.

The nuances of risk, utility, and decision theories are crucial when trying to maximize impact across Global Health and Development, Animal Welfare, and Existential Risk Mitigation. The Portfolio Builder Tool facilitates our understanding of these nuances. As a result, it can help philanthropists better align their portfolios with their beliefs and risk preferences.

Intro

If we want to do as much good as we can, we need to evaluate the cost-effectiveness of particular cause areas. To establish our priorities, we need our best empirical cost-effectiveness estimates and, crucially, we must also make decision-theoretic assumptions. In the CURVE Sequence, RP's Worldview Investigation Team investigated the cost-effectiveness of a wide array of philanthropic actions, including how well they fare under various kinds and levels of risk aversion.

However, evaluating cause areas one at a time leaves out something important: namely, how various interventions fare in combination with one another. Most philanthropic actors, whether they be individuals or large charitable organizations, support a variety of charities and cause areas. How should you construct a giving portfolio in light of your beliefs and decision-theoretic commitments?

There are two key factors that matter when moving from an assessment of individual options to a portfolio.[1] The first is familiar: namely, the cost curves of the investments that comprise it. If a charity has diminishing marginal returns, then, at some point, it becomes possible that giving an additional dollar to the top-ranking charity would do less good than giving it to a different charity.

Therefore, even someone who is risk-neutral and seeks to maximize expected value might have reasons to diversify.

Second, someone who is risk-averse may have additional reasons for diversifying. A risk-averse agent cares about the distribution of possible outcomes, preferring a surer-thing investment over one with the same expected value but higher variance in outcomes. Combinations of bets can have dis...