EA - GiveWell’s Moral Weights Underweight the Value of Transfers to the Poor by Trevor Woolley

Link to original articleWelcome 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: GiveWell’s Moral Weights Underweight the Value of Transfers to the Poor, published by Trevor Woolley on December 13, 2022 on The Effective Altruism Forum.Ethan Ligon and I submitted this to GiveWell for their "Change Our Minds" contest this year (2022). They will be announcing winners later this week (Dec 15, I think). But before they do, we wanted to share our submission here in case anyone is interested! Ethan has done some amazing work measuring real-world marginal utility by estimating demand systems using consumer purchases data. Seeing this prior work of his and thinking it may be particularly relevant to GiveWell's evaluations (and EA in general), I approached him and we wrote a short paper which we ended up submitting for the challenge.Rather than post the entire paper here and risk losing info in the reformatting process, I ask that you see the Google Doc of it here. While it does get a bit technical, I've tried to include non-technical summaries for most of the major sections. So in case you feel like some of the details are getting intense, I encourage you to at least read through the intro paragraphs and conclusions as you skim over it. If you get anything out of it, let it be that while total utility levels (over consumption) are unidentifiable, marginal utilities (over total consumption) are not--they can be measured with data!In case you aren't convinced yet to read the full article, below is a quick excerpt from the Summary:GiveWell bases much of their cost-effectiveness analysis on the value of doubling consumption. Since increasing consumption expenditures is the primary effect of the GiveDirectly cash transfers program, GiveWell uses the effectiveness (value generated per dollar) of cash transfers as a metric for evaluating the effectiveness of all other programs. However, by valuing “doubling consumption”, GiveWell has assumed the functional form of utility over “real consumption” x to be log(x) and the functional form of marginal utility over consumption to be 1/x (since this is the derivative of log(x)). This is a valid utility function in the sense that it is one of many functions that satisfies the conditions of rationality, but there is strong evidence that it is not a good representation of the preferences of the Kenyan beneficiaries of the GiveDirectly experiment.The purpose of this article is to explain why GiveWell should reconsider using “doubling consumption” as the basis for assessing the value of consumption (or income) changes and instead value “halving marginal utility of expenditure”—what we think GiveWell actually intends to value. Using data from GiveDirectly’s cash transfers program in Kenya (Haushofer and Shapiro 2016), we provide empirical evidence that rejects the use of any function that implies homothetic preferences (including marginal utility of 1/x). We then empirically estimate the true marginal utility over consumption (λ) as revealed by Kenyan beneficiaries of GiveDirectly’s cash transfers program and show how the value per dollar of cash transfers is actually 2.6 times GiveWell’s current number (from 0.0034 to 0.009). This is because 1/x is quickly dwarfed by revealed marginal utility, , at low levels of consumption.Therefore, valuing “doubling consumption” underweights the value of cash transfers to the very poor if we let them “speak” for themselves.Our "headline figure":FIGURE 5: Utilitarian ROI. The curves labeled cfe use the estimated marginal utilities of expenditure λ(x, p), with p either the values at baseline, or endline. The curve labeled log uses the marginal utility of expenditures implied by a logarithmic utility function used (implicitly) by GiveWell.4.5. Utilitarian Return on Investment. For every dollar given to a particular household, there’s some increase in utility, which we can think of a...