When should altruists be financially risk-averse?

Abstract

In the realm of altruism and charitable giving, the conventional notion of financial risk aversion may not hold true. The diminishing marginal utility of wealth suggests that extra money may have less impact beyond a certain threshold. For small, emerging charities, initial funding is crucial and carries more weight, prompting risk aversion to ensure their survival. However, as charities grow, risk neutrality becomes more appropriate, and diversification is recommended to maximize the scope of positive impact and capture various opportunities. It might be difficult to efficiently utilize large sums of money for charitable purposes, necessitating a focus on prudent spending rather than accumulating wealth. Additionally, leveraging influence and considering macroeconomic factors that affect charities’ resources are also important considerations. – AI-generated abstract.