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TheOtherDave comments on $100 for the best article on efficient charity -- deadline Wednesday 1st December - Less Wrong
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I think the point is that investments pay a return to you, so a single point of failure really hurts you where it counts.
Charities, on the other hand, pay their return to the world. The world is not horribly damaged if a single charity fails; the world is served by many charities. In effect, the world is already diversified.
If the charity you gave all your donations to fails, you may feel bad, but you will get over it. Not necessarily the case if the investment you sunk all your own money into fails.
Sure, I get that. The thing I was responding to was jsalvatier's comment that "It's important to understand why you normally diversify. The reason why diversification is a good idea is because you have diminishing marginal utility of wealth." S/he wasn't talking about charity there, I don't think... though maybe I was confused about that.
"Diminishing marginal utility of wealth" means the same thing as "don't want to be exposed to a single point of failure".
Yes, I think we do need a series on econ/finance.
(blink)
Two investment strategies, S1 & S2. They have the same average expected ROI, but S1 involves investing all my money in a single highly speculative company with a wider expected variance... my investment might go up or down by an order of magnitude. So, S1 suffers from a single point of failure relative to S2.
You're saying that I could just as readily express this by saying "S1 involves diminishing marginal utility of wealth relative to S2"... yes?
Huh. I conclude that I haven't been understanding this conversation from the git-go. In my defense, I did describe myself as finance-phobic to begin with.
No - what's under question is the scaling behavior of your own utility function wrt money; if you exhibit diminishing marginal utility of wealth, that means you want to avoid S1.