Why is fair trade worse than free trade?

Recently I’ve been asked this question a lot after casually mentioning in conversation that fair trade is actually worse than free trade. I decided to write out my thoughts here in full so I can refer back to it in the future. Feel free to use this to do the same!

Full credit for the original work is to Will MacAskill – many of the points here are originally from his book Doing Good Better.

The ‘Fairtrade’ licence is given to producers that have met specific criteria, for example meeting certain safety requirements and paying workers a minimum wage. People assume that this means it is better overall for the world’s most poor and exploited workers. Unfortunately, this is not the case.

Because Fairtrade standards are so rigorous and difficult to meet, producers in the poorest developing nations are often unable to fulfil them and get the certification. Much of the Fairtrade production comes from moderately affluent nations (by relative standards at least), and so the money from purchasing Fairtrade is typically not going to the countries  and individuals that need it most.

Also, Fairtrade products cost more, but very little of the extra money ends up in the hands of the actual farmers. Most of it is taken by middlemen. To quote some independent estimates provided in Doing Good Better:

Dr Peter Griffiths, an economic consultant for the World Bank, worked out that for one British cafe chain, less than 1% of the additional price of their Fairtrade coffee reached coffee exporters in poor countries. finnish Professors Joni Valkila, Pertti Haaparanta and Niina Niemi found out that, of Fairtrade coffee sold in Finland, only 11% of the additional price reached the coffee-producing countries.

The list goes on.

In addition, the small amount of money that actually reaches the producers doesn’t necessarily result in greater wages for the employees. One study showed that Fairtrade workers in Ethiopia and Uganda consistently had lower wages and less desirable working conditions that those working in similar non-Fairtrade companies.

Finally, MacAskill concludes by saying:

Even a review commissioned by the Fairtrade Foundation itself concluded that ‘there is limited evidence of the impact on workers of participation in Fairtrade’.

A much more effective way to improve the lives of the most poor would be to buy the cheaper, non-Fairtrade products and donating the savings to an effective poverty charity.

In short, buying fair trade instead of free trade redistributes money from the most poor to the moderately poor, it is a very ineffective means of getting money and positive outcomes to the poor in the first place.

Check out Doing Good Better for a lot more research on counterintuitive ways to do more (or less!) good in the world.

Is it selfish to not give to existential risk or far future organisations for reasons of risk aversion?

Cross-posted from the Effective Altruism forum. If you have comments or feedback I’d prefer you post them there for continuity.

I have this idea which I haven’t fully fleshed out yet, but I’m looking to get some feedback. To simplify this, I’ll embody the idea in a single, hypothetical Effective Altruist called Alex. I’ll assume silly things like no inflation for simplicity. I also use ‘lives saved’ as a proxy for ‘good done’; although this is grossly oversimplified it doesn’t affect the argument.

Alex is earning to give, and estimates that they will be able to give $1 million over their lifetime. They have thought a lot about existential risk, and agree that reducing existential risk would be a good thing, and also agree that the problem is at least partially tractable. Alex also accepts things like the notion that future lives are equally as valuable as lives today. However, Alex is somewhat risk averse.

After careful modelling, Alex estimates that they could save a life for $4,000, and thus could save 250 lives over their own lifetime. Alex also thinks that their $1 million might slightly reduce the risk of some catastrophic event, but it probably won’t. On expected value terms, they estimate that donating to an X-risk organisation is about ten times as good as donating to a poverty charity (they estimate ‘saving’ 2,500 lives on average).

However, all things considered, Alex still decides to donate to the poverty organisation, because they are risk averse, and the chances of them making a difference by donating to the X-risk organisation are very low indeed.

This seems to embody the attitude of many EAs I know. However, the question I’d like to pose is: is this selfish?

It seems like some kind of moral narcissism to say that one would prefer to increase their chances of their personal actions making a difference at the expense of overall wellbeing in expectation. If a world where everyone gave to X-risk meant a meaningful reduction in the probability of a catastrophe, shouldn’t we all be working towards that instead of trying to maximise the chances that our personal dollars make a difference?

As I said, I’m still thinking this through, and don’t mean to imply that anyone donating to a poverty charity instead of an X-risk organisation is selfish. I’m very keen on criticism and feedback here.

Things that would imply I’m wrong include existential risk reduction not being tractable or not being good, some argument for risk aversion that I’m overlooking, an argument for discounting future life, or something that doesn’t assume a hardline classical hedonistic utilitarian take on ethics (or anything else I’ve overlooked).

For what it’s worth, my donations to date have been overwhelmingly to poverty charities, so to date at least, I am Alex.

Donation pledge update

As of the 31st of August, 2016, I have pledged to donate all of my income each year over $45,000 Australian for the rest of my life to what I believe is the most effective charity/cause. That’s the short version, but I’d like to say a few more things.

Why are you making this public?

I recently heard a quote (and sadly I can’t remember where so I can’t give due credit – edit: found it) that it’s more selfish to donate and not tell anyone than to donate and tell everyone. By telling people you donate, you encourage giving norms, which encourages other people to donate. Imagine if, over the course of my life, I encourage just 1 other person to do the same. I’ll have doubled my impact.

Also, there is the very real possibility that, if I kept this as a pledge internally, or didn’t pledge at all, my values will drift over my life, and eventually I’ll stop caring to donate.

I keep a very transparent list of my donations here, and encourage others to do the same.

That’s a lot of money! Aren’t you worried?

Not really. As I’ll discuss below I think this would make me much happier than spending the money on myself. Plus $45,000 probably gets you further than you think once you take out excessive holidays, fancy houses, cars, clothes, restaurants, movies etc. And on an income of $45,000, I’d still be in the richest 1.3% of the planet.

Anyway, about $4,000 saves a life at the Against Malaria Foundation, 60 cents reduces one year of animal suffering if donated to an Animal Charity Evaluators recommended charity, and a donation to an existential risk organisation like the Future of Humanity Institute has a meaningful chance at reducing the risk of human extinction. It’s pretty hard to spend too much money on myself once I realised that.

Where do you think that money will go?

I think the answer to this question will change very often, so I won’t answer it in full here. At least in the near future it will probably just go to whichever charity I think is the most effective at reducing the suffering and maximising the pleasure experienced by conscious minds (including non-human animals, insects, and even AI if it turns out to be sentient). In the future I might decide that, say, political lobbying is more effective, so I remain open-minded.

What’s the catch?

Well, if the cost of living dramatically increases, I probably won’t make large sacrifices to maintain the pledge. There are practical and selfish reasons for doing this. The practical reasons are that, sometimes you have to spend money to make (and donate) money. If I were going for a job interview and thought I’d need a suit to land the job but I was about to go over, I’d probably buy the suit.

Also, there’s the risk of burnout. I don’t feel like I’m in any danger of burning out because I’m so motivated to make a difference, but a lot of smart people have told me that living a certain way is difficult to maintain. Donating a medium amount over a life is certainly better than donating everything for 3 years then giving up.

My current living costs are about $20,000 per year, so I really don’t see this happening any time soon. Plus I’m going to allow the cap to grow with inflation.

Wait, $20,000 a year? So you plan to blow $25,000 on yourself each year?

Not quite. I still donate as much as I can, the $25,000 is just to allow for changing circumstances.

Should I do the same?

Maybe. I guess you should ask yourself what you want in life. If it’s to make a positive difference, this is probably one of the best ways of doing so. If it’s for yourself to be happy, I’d actually argue you should still make a pledge. Anecdotally, I am much more happy after I first made a smaller pledge last year, and I feel no regret or worry about doing this today. I feel like I’m making a real difference, and that feels good.

Also, someone earning $100,000 a year is only marginally more satisfied than someone earning $50,000 a year. An individual earning $100,000 but giving half would arguably be quite a bit happier than someone who just earned $50,000 a year too. At about $40,000, other factors, such as health, relationships and a sense of purpose contribute more to happiness than income.

Have you ever felt like you have to work harder so you can buy more ‘stuff’? This is a concept called the ‘hedonic treadmill’. You can keep buying stuff and not really increase your happiness.

As I say, it did take me 18 months between hearing about such pledges and making this one. I would definitely encourage making a smaller pledge (Giving What We Can have suggested 1% for the first year), and increasing that if (or when) you’re convinced it’s manageable/makes you happier.

Any tips for saving money?

Totally. Toast sandwiches are delicious and are one of the cheapest meals per calorie (don’t use dairy butter though folks).

But seriously, Mr. Money Mustache is a great blog on reducing your spending in creative ways and investing wisely.

Budget yourself, and just don’t spend money on crap you don’t need.

I still think you’re kind of weird

Perhaps, but I think it’s a good weird. Plus, more and more people are doing this!

Why this failed pregnancy intervention highlights the need for charity evaluators

Cross-posted from LinkedIn.

From 2003, almost 3,000 school girls in Western Australia have participated in an unusual social intervention. They were given electronic baby dolls to create the experience of being a mother. The study team hoped that it would reduce teenage pregnancy rates. If you’re skeptical as to whether this would work, you’d be right, but you might be surprised by just how ineffective it was. According to a recent study published in The Lancet, not only did this intervention not have a positive effect on pregnancy rates, it actually increased them.

Australians gave over $6.8 billion to charity in 2014. We should be proud of this. Our country is built on the pillars of mateship and giving everyone a fair go – values reflected in Australians giving 6.5% more this year than last. We live this culture during Easter and Christmas appeals, when we sit down across the nation for Australia’s Biggest Morning Tea, and when we step into our local Salvation Army to help those in need.

While few would challenge the importance of giving to help others, we don’t tend to pore over the annual statements and fiscal returns of our most beloved charities. Rather, the majority of Australians base their giving choices on identity and respect for an organisation’s mission. Many charities we support aren’t always transparent about their methods, simply reiterating terms like ‘community’ and ‘support’ to encourage donations.

Surveys show that duplication and wastage of resources by non-profit organisations is our biggest concern when it comes to giving. Our concern should not only be administrative costs, but rather whether the programs they operate actually help people. Are they using evidence-backed strategies shown to work? Do they rigorously check that their programs are helping people at low cost? Sometimes the answer is yes, but too often it is no.

Unfortunately, most social programs simply aren’t that effective. David Anderson, previously Assistant Director at the Coalition for Evidence-Based Policy (now working at the Arnold Foundation) said:

…75% [of social programs] or more turn out to produce small or no effects… [or] negative effects.

This is worrying, and it highlights the need for more research into the effectiveness of charities and social interventions. Luckily, GiveWell and other charity evaluators exists to undertake in-depth charity research to find out which programs are having the greatest impact on poverty.

‘Effective Altruism’ is a growing worldwide social movement which applies rigorous evidence and analysis to raise hundreds of millions of dollars for highly effective charities. This philosophy of acting with the head and the heart is gathering steam with growing think tanks conducting research in San Francisco and Oxford. Its supporters range from Australian philosopher Peter Singer to Facebook co-founder Dustin Moskovitz.

Helping is not straightforward. But this is no excuse not to give. A minority of programs are found to be incredibly effective, saving and transforming lives at a very low cost per person.

By providing a growing literature on how to give effectively and make a difference with our careers, Effective Altruism promises to empower people around the world to make a real difference with their donations and their time. Aussies can now make tax-deductible donations to some of the most proven effective charities across the globe by visiting Effective Altruism Australia’s website.

Yes, giving from the heart is important. But our feelings need to be guided by facts. We now have the opportunity to be better informed about how, where and to whom we give. It has never been more possible for Australians to have a meaningful and positive impact on a massive scale.

Favelas and the Olympics: The hypocrisy of anger towards Brazil

There are some strange things going on in Brazil at the moment. Residents of impoverished ‘favelas’ in Brazil have been evicted in the lead up to the Olympics, causing international uproar. It’s hard to say exactly which part of this the uproar is about specifically, but I daresay it’s in relation to the fact that Brazil has spent a lot of money (a taxpayer contribution of $11.6 billion USD) on the Olympics while many are still in poverty.

I have to say it seems a little perverse to me for people to be attacking Brazil for holding the Olympics while there are still people in the favelas since Brazil isn’t the only country with poverty to host the Olympics. Not only that, when Australia held the Olympics in 2000, they too made the choice to spend money on the event rather than spend it on those in need locally and abroad. I would even propose that Australia is about as morally reprehensible for hosting the Olympics as Brazil.

To predict a common response, I don’t think that Brazil is more responsible for Brazilians than Australians (or anyone else) are. To say so must surely mean that we think Brazilians are worth less than Australians. When we have an opportunity to help people, we should do so, regardless of where they are. And yet as a nation, in 2000 Australia decided that $1.7-2.4 billion USD (taxpayer funded proportion) was better spent on games than on helping people. The Against Malaria Foundation didn’t exist at the time, but they are now able to save a live for around $3,000 USD. Consciously or not, we may as well have decided that the Australian Olympics was worth 566,666-800,000 lives. Were the economic benefits and the enjoyment of the public worth so many lives?

And so I don’t think we can really get too upset with Brazil. They made the same choice we did with a bit less visibility. I don’t mean to say that it’s ok that Brazil is largely ignoring their most impoverished at the expense of others. I think it’s terrible. Which is why I had to draw attention to this.

On funerals and death

“Imagine at the next funeral you go to, you hear in the eulogy that they died because people at a previous funeral didn’t donate their time or money instead.”

I just returned from a funeral where I thought some long thoughts. This essay is them, and also serves as an informal will, seeing as I don’t have one.

As I sat in the pew of that church, I couldn’t help but wonder at how many people were present; it must have been at least 200. My thoughts quickly turned to what I would want if it were my funeral. And I realised that I don’t want a funeral at all, and not just because I’m not religious.

Like most people, I care a lot about others, and I want to reduce the amount of suffering and loss in the world. One of my earliest motivations for this was when a friend’s mum passed away from cancer. When I offered my sincere condolences, they told me that there was nothing I could have done. That stopped me. Why? Perhaps there was something I could have done. I started to think about ways to stop cancer, but I quickly realised that suffering can come in many forms, and it is the suffering that I want to end, not necessarily just cancer.

So eventually I realised that I could donate $4,000 AUD to the Against Malaria Foundation and save a life. One whole life for the cost of a holiday. It suddenly seemed hard to justify ever going on a holiday again. If my reaction to death is wanting to stop it, and I have the opportunity to easily stop it, how could I possibly turn that down for some leisure?

Back to the funeral – 200 people in a room for 90 minutes. Assuming that many people would come to my funeral, that’s a lot of person hours (300 to be precise). In my funeral, they are offering my family their condolences and remembering my life, sure, but what if they could use that 300 hours to save another life. Let’s say those people are able to earn $20 an hour on average. If they each spent 90 minutes working instead of being at my funeral, they could make $6,000, enough to save 1.5 lives.

Of course, people can’t always just work at moment’s notice, so this is meant to be illustrative only. But now we’re getting at something – death is awful, but what if you could prevent a death in the time you spent mourning a life? I foresee getting some criticism at this point, so let’s try a thought experiment.

Imagine you’re on your way to a funeral and you see a person lying on the side of the road bleeding out. You stop your car and spend the next 90 minutes performing CPR until the ambulance arrives. You miss the funeral, but the paramedic tells you that you quite literally saved a life. Do you think you were justified in missing the funeral? Do you think the person who died, or their family, would forgive you?

Ah, you say, but I can’t make $4,000 in 90 minutes, so this is an unfair analogy. Ok, well let’s now ask whether you would do the same for a cat you had just driven past. Same situation, CPR until the vet rocks up, and you’re told that you saved the cats life. This is probably a trickier choice, but I imagine a number of people would still pick the cat over the funeral. As readers of this blog would know, a donation to one of the animal charities recommended as being highly effective by Animal Charity Evaluators can reduce one year of animal suffering for just 60 cents (USD). And so if you make $20 an hour, in 90 minutes you could spare 33 animals from a year of suffering.* Even if you would drive past a single cat, you probably wouldn’t drive past a truck full of 33 cats bleeding out.

Of course we can go 1 step further to organisations working to reduce the chance of existential risk where estimates of the impact of a dollar donated range from saving 1 to 1,000,000 lives at some point in the future (albeit with significantly more uncertainty – but on expected value this may check out).

So while people can’t necessarily spend 90 minutes working extra for money at will, they could do a range of other things, like doing some high impact volunteering (I don’t mean working at a local soup kitchen or handing out blankets, which wouldn’t have anywhere near the kind of impact I’m talking about). Add onto that the $5,000 that I estimate a funeral of that size to cost, and it seems quite perverse for me to ask people to come and honour my life for 90 minutes.

So in lieu of having an actual will, I formally request here that, in the event of my death, if you would have come to my funeral, please instead donate 90 minutes of your salary to [insert whatever I think is the most effective charity at the time here – at the moment I suspect it’s one of Machine Intelligence Research Institute, ACE, Foundational Research Institute or Raising for Effective Giving**] and ensure that the $5,000 that would have otherwise been spent on the funeral goes there too.

Of course, I fully accept that we don’t keep promises or go to funerals for the dead, we do it for the living (and I don’t think that not going to a funeral to make $4,000 would be anywhere near as socially acceptable as saving a life on the road, even if you donated it to AMF, and even though I think it should be***). And yet, I can’t imagine that spending 90 minutes mourning in a group is really a better thing to do than to arrange to save so many lives.

Imagine at the next funeral you go to, you hear in the eulogy that they died because people at a previous funeral didn’t donate their time or money instead.

* I use ‘year of suffering’ instead of ‘lives saved’ here because the charities tend to either reduce the amount of suffering experienced by farm animals or reduce animal product demand/create vegans to remove animals from being brought into a life of suffering. But this is still valid, and since many farm animals live for less than a year, I feel justified in using this example.

** The best cause/organisation to give to will almost certainly change over time. In case I don’t update this (or get around to making an actual will), I would be comfortable with giving either Michael Dickens or Brian Tomasik the right to decide where these donations (and any leftover assets I have) end up going. I don’t know them very well, but they are two of the few people I trust to make a mostly rational decision, and to care sufficiently about both non-human animals and the far future.

*** At this point, one might reasonably ask why I go to funerals. I don’t have a great answer. I personally think that my going to funerals is more selfish than staying home and working on some problem, because by not going people would think less of me.

Should you donate to Animal Charity Evaluators even if you’re not vegan?

If you haven’t heard of Animal Charity Evaluators (ACE) yet, there’s a really neat summary of them here, but in short, they are doing research on the most effective ways to help animals and reduce their suffering. They perform foundational research on a range of things from the effectiveness of various interventions, such as leafleting to encourage people to go vegan or eat less meat, to the scale of wild animal suffering (it’s huge).

They also produce recommendations on which charities to donate to in order to reduce animal suffering. Perhaps counterintuitively, they don’t recommend animal shelters. This is because the impact of creating one extra vegan on animal wellbeing is so high that it makes the impact of sheltering one extra animal look tiny in comparison. ACE estimates that Vegan Outreach, one of their standout charities which does leafleting at universities, can spare 1.87 animals from a life on a factory farm per dollar donated. By reducing the demand for meat, the animals are, in theory1, never brought into existence in the first place. If you believe like I do that a life of immense suffering is worse than no life at all, this is surely a good thing.

Let’s suppose that rescuing and sheltering one animal costs $50. I have no idea what it costs but I think this is a safe underestimate. Therefore, for the same cost that it takes to shelter an animal, Vegan Outreach can spare 93.5 animals from a life of suffering. Unless you value shelter animals much more than you do food animals, you should donate to Vegan Outreach (or better yet, ACE, to multiply your impact). I don’t think you should value shelter animals more than food animals though. They can all suffer, and in fact pigs are more intelligent than dogs, so if capacity to suffer is what you care about, you should probably care about pigs a little more than dogs.

So this is why I would argue you should donate to an effective animal charity rather than a shelter, but what about the original question? There are many great reasons to go vegan, and it’s really easy, yet many have still decided to not go vegan because they enjoy the taste of animals too much.  Even if this is you, I think you should still donate to ACE. Most people who eat animals still claim to care about animals, so if you want to be at least partially consistent with that belief, the very least you could do is donate to a charity which is reducing their suffering. Of course, I think being vegan is far easier than people think, and you should do this as well because it’s not one or the other (see this video for how to literally go vegan overnight). I’m also not saying that anything but a vegan lifestyle is ethically justified, and don’t want to make it sound like I’m supporting that. But if you can’t bring yourself to be completely vegan, at least donate a chunk of your money to ACE2. Last estimate I heard was that it costs $500 to create one vegan through Vegan Outreach, so you should donate at least that much3. But why stop there?

Let’s go one step further and say that you currently donate to charities that focus on humans. Arguably the most effective charity working on poverty and global health, the Against Malaria Foundation (AMF), saves a human life for around $3,300 USD. In effect, you would have to value human life something like 3,000+ times more than the life of an animal to donate to AMF instead of a top animal charity.


1 I say in theory because other factors such as market elasticity are at play which dilute your effect.

2 I’m wary that such a stance will make people less likely to go vegan and to just donate a bit of money to ACE and think they’re ok. I think, on balance, this article is more likely to have a net positive effect than a net negative effect (otherwise I wouldn’t have posted it), but I want to make it doubly clear that I think you should do both.

3 An interesting conclusion comes out of this which might be uncomfortable for those who aren’t consequentialist in their ethical beliefs. If donating $1 is expected to save 1.87 animals from a life of suffering, that means that by not donating, you have confined 1.87 animals to a life of suffering, because there is no morally relevant different between an action and an inaction (think walking past a drowning child in a shallow pond when you could easily save them). By extension, if you’re vegan (or even if you’re not) and you spend $20 on a nice restaurant meal when you could have eaten for $5, having spent $15 on yourself needlessly instead of donating it to a top animal charity, you have consigned 28 animals to a life of suffering. Consider that next time you dine out. This leads to questions like ‘well where does it end then?’ Maybe it doesn’t. Living on less is easy and arguably better for your wellbeing, and you get to save a ton of lives. Why wouldn’t you?

Disclosure: While Michael has worked with ACE in the past, he has never been an employee or an official volunteer.

The problem with so many advocacy groups

Recently I’ve become somewhat jaded with typical advocacy groups, which are usually in the form of non-profit organisations. These organisations are very often single issue groups – they pick a side in a debate (sometimes for great reasons, sometimes not), and stick to it. In fact, they are bound to stick to it – a point I’ll return to shortly.

Take an extreme example like the Anti-Nuclear Alliance of Western Australia. They are clearly committed to being against nuclear. Without actually taking sides here and completely ignoring the science (because for this thought experiment it’s irrelevant), let’s say that we know for a fact that nuclear use is unsound – the ANAWA would therefore have very good reasons to be against nuclear in (Western) Australia. But let’s now say that the state of science has changed. We realised we were wrong, and now we’re very certain that nuclear usage is not only safe, but beneficial and necessary to tackle climate change (these scientific flips really aren’t that uncommon, even today). In this hypothetical world, we’re now more sure that nuclear is safe and beneficial than we are that smoking causes lung cancer. What happens to the Anti-Nuclear Alliance of Western Australia?

In all honestly, I dare say they would most likely stick to their policy line. Their organisational mission, strategy and vision all dictate that they fight against nuclear in Australia. They owe it to their stakeholders, the donors who are giving money to them to fight nuclear, to continue their path. I see this as a fundamental flaw of such an organisation.

I often joke about a charity called the ‘Do The Right Thing Society’, or the ‘Best Possible World Organisation’, whose mission is simply to make the world as good a place as possible. Such an organisation might not be as appealing to the majority of the public as something more punchier, even if they happen to have the same mission at the time because the science aligns with public sentiment that way. The advantage with DTRTS though is that they are committed to updating their mission and actions with new evidence. If we expect individuals to do this, why can’t we demand the same of charities, or political parties for that matter?

In essence, I do believe that Effective Altruism seeks to plug this gap. At its core, it’s a movement of people seeking to find the most effective ways to maximise well being while being neutral to individual causes.

There are some things that we can be quite confident will not change, like the fact that non-human animals, women and other groups persecuted in the past and present should not be exploited. However, society did once believe that it was right to keep slaves, right for women to not vote, and many still believe that it is right to exploit animals. People should be open to changing their minds, even on their most closely held beliefs.

I have a nightmare that historians a mere 200 years in the future will look at my actions with horror, or kindly explain to each other that my actions were a product of the time and there’s nothing I could have done about it. What do we do today that will be abhorrent in the future? I think the only thing we can do is stay open minded about morality, whilst accepting that there is a right answer out there somewhere, and we are always striving towards it.

Expert opinion or simple model: Which is better?

I saw a very interesting talk at work today about decision making in oil and gas businesses, and thought it had some pretty neat applications for decision making in general. I’d just like to summarise the research by David Newman who is studying his PhD at the University of Adelaide in the Australian School of Petroleum. He has 35 years experience in the oil and gas industry and in decision making. Unfortunately I don’t have full references for a lot of the work due to the format of the presentation and have tried to provide credit where possible.

The premise is that oil and gas projects (the exploration, development, drilling and production of petroleum) struggle to achieve promised economic outcomes in hindsight. Research has shown that a good predictor of outcomes is the level of front end loading (FEL), or exploration, feasibility studies and analysis, completed at the final investment decision (FID), when the full blown project is given the final go-ahead.

The value of FEL is well known and many individuals and companies advocate its use, but in reality it is not used or used poorly. More commonly, expert opinion is used. A common situation is expert opinion overruling a work of analysis because they claim that this project in particular is somehow ‘different’ or ‘unique’ compared to other projects.

As we know from research in the non-profit sector, expert opinion is very often wrong, and is not a substitute for data and analysis, and so it is no surprise that it holds little value in other industries as well.

However, Newman proposes that expert may be a viable substitute if and only if it passes 4 tests:

  • Familiarity test – Is the situation similar to previous known examples?
  • Feedback test – Is ongoing feedback on the accuracy of the opinion good? If evidence is received that expert opinion is not working for the given situation, immediately review. This is notoriously difficult for projects with multi-year lifespans, such as oil and gas projects and charity programs.
  • Emotions test – Is there a possibility that emotions are clouding the expert’s judgement?
  • Bias test – Is there a possibility that the expert is succumbing to some kind of bias? It is hard to be a dispassionate expert on an issue.

There is a belief that data and models are only better at predicting outcomes than expert opinion if they are complex and advanced. Meehl’s work shows that even simple models are better than expert opinion in the majority of cases. 60% of comparisons showed that the simple model was better, and the majority of the remaining 40% showed something close to a draw.

To understand the phenomena at play, Newman and his colleagues interviewed 34 senior personnel from oil and gas companies with an average of over 25 years experience in the industry. The personnel were a mix of executives (vice president level or equivalent), managers and technical professionals (who were leaders in their own discipline).

The survey data showed that ~80% saw FEL as very important, ~10% as important, with none saying it was not important.* However, none of those surveyed use the results from FEL as a hard criteria. That is to say, none are willing to approve or reject a project based on FEL data alone. Many used FEL as a soft criteria, in that it guided their final decision, but had no veto power. The results of this survey are not statistically significant due to small sample size, but according to Newman may be seen as indicative.

Interestingly, the executives tended to rate their understanding of the technical details of projects higher than the actual technical experts. Either the executives are over confident, the technical staff are under confident, a combination of both, or, seemingly less likely, the executives really are more competent in technical matters.

Newman proposes the following set of solutions to overcome the problems discussed here.

Apply correction factors to predict likely outcomes based on FEL benchmarking (comparison to other projects). This is difficult in oil and gas due to the differing nature of projects, and is expected to be a problem in charity programs as well. It might be worthwhile looking at programs that have done similar work in an attempt to benchmark, or at least previous programs within the same organisation.

Benchmarking can be a checklist to score against a certain criteria. For example, a dispassionate outsider can be brought in to answer pre-determined questions and provide an assessment based on data (and only data, without interpretations) from the team. They might also rate individual categories as poor, fair, good or best.

The adjustment factors will vary significantly between different types of projects, however the table below provides an example for two factors, cost and schedule, which have been rated by an external auditor. If the schedule has been rated as poor, as in the schedule pressures are likely applying pressure and biasing results (being behind schedule makes staff more likely to say the project is complete), you should adjust the appropriate data by a scalar of 1.1-1.5 (or inverse). My interpretation of this is that if long term costs are expected to be $100/week, and the scalar of 1.4 is selected due to the project being behind schedule, the true cost should be estimated as $140/week. The ranges are examples only, and the ideal values for a given type of project can only be determined through extensive analysis of that type of project, which can make this type of analysis difficult to be meaningful if substantial data isn’t available.

Best0.9 - 1.150.9 - 1.15
Good0.95 - 1.20.95 - 1.25
Fair1.0 - 1.31.05 - 1.4
Poor1.05 - 1.451.1 - 1.5

Apply post-mortem analyses, or reviews of projects after completion.

Apply pre-mortem analyses. This involves asking everyone involved in the project to imagine that the project has concluded its life, and a disaster has occurred. They are then asked to propose why the project failed. This increases the chances of identifying key risks by 30% (no source beyond Newman for this unfortunately, but it’s a huge result). The reason being that it legitimises uncertainty, and makes staff more likely to think of obscure lines of thought or things that might be considered rude to bring up under different circumstances. Calling a team members work a risk would be uncomfortable in other situations.

I’d be interested to see some of these techniques being applied in non-profits and EA organisations more if they aren’t already, especially the pre-mortem technique. If the data is to be believed then it is a highly effective exercise. Also interested to hear your thoughts as to how they could be applied, or whether you think they are useful in the first place.

Again, there are several references to the work of other researchers that I would love to have referenced, however was unable to as the reference was not provided.

*In my personal opinion, the way these surveys are structured may lead to some bias themselves. For example, the 4 choices for this part of the survey were ‘very important’, ‘important’, ‘neutral’ and ‘not important’. It doesn’t seem likely that anyone perceived to be an expert would say a concept known to be important is important.

Peter Singer’s 70th birthday

This post is a bit of a plug, but it’s for a great cause so I’m ok with that.

As you might know, the Effective Altruism Adelaide group is hosting Peter Singer, Australian moral philosopher, for a presentation and Q&A about his work on the 13th of April. Peter has made massive contributions to the field of ethics through his work on poverty, animal rights and in co-founding the Effective Altruism movement.

July the 6th is Peter’s 70th birthday, and for an early birthday present we are hoping to raise an enormous amount of money for one of the most effective charities in the world, the Against Malaria Foundation. Peter himself has donated $100 to the cause, but imagine his surprise when he finds out we have raised tens of thousands of dollars for a cause he is so passionate about.

$25,500 worth of donations are being matched by anonymous donors, so this is a great way to double your impact as well.

So why not make a small contribution to show how Peter has affected your life through his work. As for me, he’s literally changed my life.

NB: If you’re interested in the Against Malaria Foundation’s effectiveness, they are estimated to be so effective that they can save a life for on average less than $4,000 AUD. A$40,500 achieved = 12,000 nets bought = 22,000 people protected = 44 ENTIRE villages protected.