Bad Balance Bias
Balance in life is good. You need to work, relax, have fun, try new things, continue old things, have sex, do sport, play games, sleep. The balanced lifestyle is the ideal, and we all know this.
Problems start when we extend this idea of balance beyond our personal lives. We deal with political and charitable choices as if balance was a virtue. It’s bad enough for governments – they are expected to fund highways, trains, buses and subways, to subsidise clean energy, petrol exploration and energy efficiency, pay money for the opera, for theatre, for sport, for museums and for films. At least in the government’s case the sums involved are so huge that they change the marginal value of these various activities, making this balance obsession possibly acceptable.
But personal charity is the worst. People will give money to combat hunger in Africa, to help the victims of the Tsunami, to educate the under-privileged, to combat global warming and malaria. Since most donations are small, there must be one charity whose marginal value is the highest; rationality implies we should give all our cash to that one. Not only is this not the case, but people seem to prefer to spread their donations around. “You can’t just do one thing” is the reaction I get when questioning this. Yes you can, for charitable giving, and you should.
What are the implications, if my analysis is correct and people demonstrate an irrational love of balance? First, that people will react better to statement like “we are transferring part of X’s funding to Y” rather than “We are cutting X’s funding. We are also increasing Y’s funding.” Secondly that it will be easier to reduce the funding for some X, but much harder to get rid of X entirely. Lastly, that charities boasting a range of different types of projects will fare much better than they should.
While I do not doubt that one should do all donations to a single truly best cause until its saturated, then to the new best, and so on, the problem is that people's evaluation of "best" is prone to accidental and deliberate subversion by superstimuli.
For not so politically correct example, if your reproductive instincts are to freely choose "sexiest" woman, you will end up choosing some pornstar with breast implants and very low interest in reproduction.
Likewise, if you are to choose charities based on attractiveness and perceived honesty of spokesperson, at the small ranges it may well weakly correlate with the honesty but at the large range it will correlate with having a makeup team and with willingness to spend non trivial time watching videos of oneself and practising honest face - having a test group evaluate the perceived honesty in the videos - perhaps even plastic surgery - something that few honest people would do.
Likewise, if you are to choose charities based on perceived 'caring' level as set by gut instinct, you are likely to end up donating for very expensive medical treatments for small children with very poor prognosis, while a huge number of children elsewhere lack most basic medical care.
Spreading between several best causes decreases the tendency to put all donations into superstimulus charities. Without this, people would be like a bird that puts all the food into cuckoo's superstimulus mouth which is brighter and larger than bird's own chick mouths.
Furthermore, diversification decreases the expected pay-off from deliberate creation of superstimuli, hopefully keeping down the number of superstimuli.
I do not believe that the argument against diversification of charity spendings needs to be made. The people who can not come with it themselves would certainly be unable to determine the best charity without falling for some kind of superstimuli.
While the society certainly does instil the bias that everyone should be doing things in balance, it feels more rewarding to donate only to the cause that tugs the hardest at your heart strings - most likely, a rather bad cause.
It's not often I come across a real economic analysis of altruistic efforts, like charitable foundations. I think part of that is that publicly traded corporations have the simple purpose of making money for shareholders, while the goal of charities is less clear, and the source of the money is so removed from the ends to which it is put. An exception to this is this from the Becker-Posner blog.