The power of utility frameworks

In my last post on next steps I mentioned that I had the opportunity to present at the F.B. Heron Foundation’s inaugural Power of Information conference in July. Last week Heron posted all the presentations from the conference to their YouTube channel. If you are interested in getting more out of data in philanthropy, I strongly recommend giving these talks a look.

For my talk, I focused on how grant makers can make better social investments by developing what I refer to as a “utility framework”. A utility framework is a way for grant makers to explicitly assign subjective values to the outcomes of investments.

I think where people have struggled with the idea of assigning values to social outcomes in the past is that one cannot objectively assign value to one outcome versus another, especially across social sector issue areas. How does one compare preserving rain forest to teaching poor kids to read?

There is no objective way of measuring unlike outcomes. However, we make these subjective value judgments all the time, when we decide to invest in one cause over another. The purpose of a utility framework is to make those values explicit, so foundations can make consistent decisions across investment portfolios.

If you make it to the question and answer portion of my talk you’ll notice that I get a lot of push back from the audience. Indeed, there seems to be a lot of skepticism that you can translate personal values into a mathematical model.

But there is precedent for this modeling approach. Large companies model the risk preferences of their executives, and use these models to apply executives’ values to investment decisions without those executives present.

In my talk, I don’t propose anything new. Rather, I recommend applying this already proven technique for modeling subjective values to social investing. The only difference is that instead of modeling financial risk, we are simply weighing social outcome risks instead.

I have embedded the video of the talk above, as well as a SlideShare embed of the slides I used at the end of this post. If you would like to download the PowerPoint slides directly, you can do so here. Please note that the PowerPoint slides in the video got a bit garbled (particularly the mathematical notation), so it might be worth thumbing through the PowerPoint.