Expected Value, and the Impact of Making Intelligent Choices in an Uncertain World


Mike Spear

Co-Founder & CEO


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I’m a poker player through and through, yet I hate pretty much every other form of gambling. For many of you, this may seem like a pretty big contradiction. Let me explain:

Gambling is defined as a game of chance where the players have no control over the outcome. Bets are placed based on arbitrary, often superstitious factors, and the rest is left to fate. Even for gamblers who truly understand the games they’re playing - experts at blackjack and craps for example, they’re still at a mathematical disadvantage to the house. Over a long enough timeline, they will always, inevitably, lose. Statistical variation aside, there’s nothing they can do to prevent it.

Poker, like life, involves some measure of luck. However, while it does involve some element of gambling (doesn't everything?), it is primarily a game of skill. Players make choices based on what they know about their own position (internal factors), and the incomplete information they have on their competitors (external factors). Unlike traditional gambling, they’re not up against a powerful house with superior odds - they face other human players and are on equal footing with their competition. The only difference between them and those they’re up against, is their relative skill, training, experience, resources, and mental and emotional state.

Each player is given a few random cards to start with, often for free or for minimal investment. From there, based on their own knowledge and what they learn from the other players, they decide whether they want to participate further and how much to invest. As games progress, there are opportunities to gather additional information, and gain a better understanding of the various factors of a given hand. They face several key decision points over time, during which they choose whether to invest further, or preserve their resources for better opportunities in the future. Eventually a winner is declared and a new round begins. Rinse and repeat.

In poker, as in life, there are insights gained through communication and observation, unpredictable external forces, and careful analysis based on available data. Over the course of a hand, players acquire information and are able to make increasingly better-informed decisions. As in life, there are unforeseen events and momentary setbacks. Sometimes things don’t go the way you hope they will, but if you develop sound strategies and stick with them, you will come out ahead. Eventually, the players with the best understanding of the game - those who learn the most, make the most accurate assessments, adapt most effectively to new information, and have the courage of their convictions will be successful. Over a long enough timeline, it’s not a gamble - it’s an absolute certainty.

This is further illustrated by the different mentalities around deciding whether to continue playing or stop. In traditional gambling, the maxim “Quit while you’re ahead” sums things up quite nicely and is generally the best advice a gambler can possibly heed.

In poker, the decision around whether to quit or continue is much more complicated. The process goes something like this:

  • What is my skill level compared with that of my competition, and how can that be expressed in terms of likely benefits and drawbacks, wins and losses?
  • What is my current resourcing, and how able am I to persist through various ups and downs?
  • How do I feel? Am I tired, depressed, distracted, or bored? Am I excited, focused, clear, creative, observant?
  • What is my general perception (brand) among the other players in the game? Do they respect me, or do they think I'm incompetent or compromised?
  • What impact do each of these factors have on the likelihood I'll be successful in achieving my goals?

If the answers to those questions result in a positive expectation, as well as the desire to keep participating, then we press on regardless of whether we’re winning or losing at a given moment. If our likelihood and magnitude of success falls below an acceptable level, or if we simply don't feel like playing anymore, we pick our chips up and leave immediately.

As you can see, this process is pretty similar to the choices we make in business, in relationships, and life. Odds are, you've gone through very similar processes in both your personal and professional life.

So, what does any of this have to do with social impact? It all speaks to a way of making decisions powerfully in a complex world, called Expected Value

Expected Value in Social Impact

The root of poker’s decision making is the concept of Expected Value, and while it’s not a widely understood concept, it’s deeply ingrained in every decision we make as leaders, and often in our personal lives as well. Many of us do it instinctually, but here’s the formula:

Formula for Calculating Expected Value
Formula for Calculating Expected Value

Or, as one prominent philanthropist puts it:

“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect but that’s what it’s all about.” — Warren Buffett

Basically, you try to figure out all the possible benefits, assess their magnitude, and likelihood of occurring. Then, you figure out all the possible harmful outcomes, along with their magnitudes and likelihoods. Subtract one from the other, and you get the expected value. This can be done, with varying degrees of certainty, with every decision you face in life or career.

On its face, this appears to be a simple formula, but like a lot of things, the devil is in the details. Getting the inputs right - including all the possible impacts (positive and negative), and correctly assessing their likelihood and magnitude can be tricky. Careful study, research, the gathering of quantitative and qualitative evidence, and creativity must be brought to bear. This takes intelligence, creativity, tenacity, and quite a bit of luck, as the quality of the equation can wildly impact the result.

Unfortunately, many funders like to pretend there’s certainty around impact. If we contribute $X, we’re guaranteed to achieve Y outcome. The best cookstove is A, and the most effective way to increase literacy among children is B. These salaries are too high, and we shouldn’t spend such a high percentage of our budget on fundraising. However, lived experience tells us simply isn't the case. Certainty around these fallacies is one of the main reasons we haven’t been more successful at solving some of the important social challenges we claim to be working towards.

2 images of cookstoves in a small kitchen
Images courtesy of The Adventure Project

The best cookstove often depends on the cultural norms and specific people who will be using them. Their diets, domiciles, and size of the family unit are all important factors. Leaning too heavily on certainty will preclude innovative solutions to entrenched problems. Without effectively exploring external factors, many philanthropists will never learn that the most effective way to improve education outcomes in some third world areas isn’t necessarily school related at all! It might be inoculation against parasites and other ailments that cause children to miss school; it may be lack of secure infrastructure that would allow them to get to and from school safely. It may be economic, where family incomes are low enough to require children to work instead of attending class.

Perhaps worst of all, the focus on efficiency of outcomes is little more than the age-old overhead problem dressed up in a shinier suit. If we want to achieve deep and lasting impact, we need to hire great people, pay them competitive wages and benefits, and treat them well. Competition for the best talent with the brightest minds and deepest expertise is fierce, and we know that healthy, secure people produce the best results! Yet, most industry watchdogs will tell you that the programs that can produce the most units of impact for the lowest price are the most worthy of support. What about quality, depth, and durability of impact? Shouldn’t we value these things over sheer cost per outcome?

“Our generation does not want its epitaph to read, "We kept charity overhead low… We want it to read that we changed the world, and that part of the way we did that was by changing the way we think about these things.” -Dan Pallotta

The principles of Expected Value can be brought to bear at the program and organizational level, but let’s zoom out further, and apply it to an entire cause sector.

Glacier and Clouds: Photo by Mark Neal

Climate Change: A Powerful Example

As William MacAskill argues in his great and highly-influential book, Doing Good Better, one of the best cases for EV-based thinking is global climate change. Regardless of what you believe about the climate change issue, what side of the political aisle you fall on, or whether or not humans are causing or accelerating it, Expected Value shows that solving it is a worthwhile investment. The myriad benefits encompassed by effectively addressing climate change are staggering. They span environmental, economic, animal welfare, health, and even national security.

TL:DR; Expected Value thinking shows that no matter your politics, beliefs, or personal values, the benefits of supporting climate change mitigation work are so great, and the potential drawbacks so small, that it’s always positive-EV investment to make. You don’t actually need to believe humans are causing it, for you to benefit from investing in solving the problem.

Reducing the damage done by major storms and preserving the health of our oceans and fisheries has enormous economic benefits. Deforestation of the rainforest impacts not only the planet’s ability to cool itself and replenish oxygen, but also may prevent the discovery of potentially life-saving drugs, having both health and economic implications. Investment in renewable energy means the creation of high-paying jobs in modern companies. Less pollution means less respiratory ailments, cleaner waters, and frankly, a higher quality of life for everyone. Mitigating climate change means less severe changes to our agriculture, which has major economic and health implications as well. At the extreme end, even if you believe it to be extremely unlikely, climate change gone unchecked could have dire consequences on all human life as we know it. Expected Value thinking tells you that even if you think that has an incredibly remote, near-zero likelihood of coming to fruition, the magnitude of the damage means it’s worth investing in solutions to prevent.

On the downside… we disrupt a fossil fuel industry that, with a rapidly-declining source of raw materials, has a short shelf-life anyway, and we end up wasting a bunch of money on solutions that don’t work. Even if investments in climate change mitigation fall short of expectations, they’re still very likely to have incremental benefits. Even if the interventions fail to work, the likelihood and scale of the harms involved pale in comparison to the expected benefits, and the risks of allowing climate change to proceed unchecked. Expected Value calculations tell us that climate change mitigation is absolutely a worthwhile investment.

So what does it all mean?

If we’re serious about impact; if we’re serious about solving problems, and leaving the world better off than we found it, then we have to learn to embrace uncertainty, and invest heavily in the solutions with the highest expected value, regardless of near-term fluctuations. It’s about building great systems and supporting them, while continuing to learn and improve, and being resourceful enough to weather temporary setbacks.

Like any winning poker player, investor, or successful CEO, we need to learn to have the courage of our convictions and invest in high-EV solutions, and keep refining and investing in them even when they don’t produce the immediate outcomes we might want. We must learn to invest in great people and organizations, and trust that over a long enough timeline, with enough resources and tenacity, they’ll produce the incredible social results we all want to see.

We should build philanthropic portfolios that include tried-and-true impact programs, while also placing bets on high-impact longshots that, if successful, could end up solving these problems for good. We should balance investments in service-based organizations (those treating the symptoms) with investment in the often less-sexy systems-change orgs (those treating the root causes). And, we should prioritize the depth, quality, and durability of the impact, rather than the easier and more tangible cost-per-outcome reported.

Fail to seek out the available data, think critically, ask powerful questions, and incorporate a comprehensive expected value strategy in your philanthropy, and all you're really doing is gambling.

About the Author:

Mike Spear

Mike Spear

Co-Founder & CEO


Mike Spear is a social entrepreneur, content creator, and social impact strategist. He’s the host and producer of the Cause & Purpose Podcast, founder of Moonshot.co and Altruous.org. Before launching Altruous, Mike was part of the founding team at Classy.org, where he helped raise more than $5 Billion for social impact causes, en route to a successful acquisition by GoFundMe. Before that, he spent several years as a journalist and filmmaker, and holds a master’s degree in journalism from NYU.

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