Gifted children could learn math much earlier

By Jonah Sinick

Cross-posted from the Davidson Gifted Issues Discussion Forum

(As background context, I’m a mathematician, and I’ve taught gifted children math over a span of ~10 years.)Something that I’ve noticed lately is a widespread implicit acceptance of the norm for gifted children to learn math at grade level, or just 1 year above grade level. My experience has been that even moderately gifted children (IQ ~130) can learn algebra in at age ~11, and that highly gifted children (IQ ~145) can learn algebra at age ~8. Moreover, I think that there are strong arguments in favor of this.Developmental capacity

  • It’s not uncommon for moderately gifted children to be 2+ years ahead in reading and for highly gifted children to be 5+ years ahead in reading, so one might expect them to have mathematical potential that’s 2+ or 5+ years ahead of grade level (respectively).
  • IQ was for a time believed to be “mental age divided by chronological age” multiplied by 100. This notion has (rightly) fallen out of favor, but it’s sufficiently close to the truth for people to have believed it. Under this assumption, a 10 year old with IQ 130 has mental age 13 and a 10 year old with IQ 145 has mental age 14.5, and these 10 year olds are correspondingly cognitively ready for curricula aimed at people of their mental age.
  • I know of people of IQ ~160 who have learned calculus at age 7: this suggests that in some respects IQ understates “mental age.”


Some people have suggested that it’s better for gifted children to learn a broad range of things rather than accelerating, because if they accelerate then they’ll be out of sync with their peers. I think that this is true in some contexts. But I don’t think that the benefits of being better in sync with one’s peers outweigh the benefits of accelerating through the K-12 math curriculum specifically.

  • Grade school math is key to understanding the natural sciences, statistics and economics. Remaining at grade level in math substantially delays a gifted child’s ability to understand these things.
  • Learning math well builds general reasoning ability, which has benefits across domains.
  • Many gifted children find math especially enjoyable once they become deeply involved in it.
  • Being far ahead in math can build confidence on account of being an unambiguous signal of intellectual ability.

In The Calculus Trap Richard Rusczyk at Art of Problem Solving argued that rushing through the standard curriculum is not the best answer for mathematically talented young people, suggesting that students should instead focus on learning how to solve complex problems. I agree with him that learning how to solve complex problems is more important than acceleration through the standard curriculum. But the two things aren’t mutually exclusive: gifted children can both learn how to solve complex problems and accelerate through the standard curriculum.

Learning precalculus and calculus was a transformative experience: it allowed me to understand physics, it gave me a thrill, and it made me better understand myself on account of tapping into my latent mathematical ability. It was when my intellectual development really accelerated. I was 16 at the time. I wish somebody had encouraged me to start earlier. A sizable minority of the most intellectually impressive people who I know I know had similar experiences.

There are large potential returns to gifted children learning more math earlier on.


Managing your time spent learning

By Jonah Sinick

Cross-posted from Less Wrong and Quora. Related to the information wiki page managing your time.

This article is written for people who are looking for advice on prioritizing activities, in particular, what to spend time learning.

In thinking about how to budget your time, it’s helpful to explicitly prioritize the activities that you engage in in terms of their relative importance, and distinguish between what’s important and what you find interesting. Sometimes we exaggerate the usefulness of interesting but only slightly useful activities in their minds, on account of wanting to believe that time spent on them is productive. If you think about how useful an activity is and, how interesting the activity is separately, you’re less likely to do this. It’s helpful to consider the following four categories of activities:

  • Important and interesting: Do, and take your time. Get it right!
  • Important and not interesting: Do as much as necessary, and maybe a bit more; look into ways of overcoming procrastination. Also consider ways to make them more interesting.
  • Not important and interesting: Do only if you feel like it, don’t try to press yourself, and consider substituting with activities that are interesting and important.
  • Not important and not interesting: Avoid.

More below

Interesting and important

When you find an academic subject interesting, and when it’s important (e.g. for your future job, as a prerequisite to courses that you’ll take in the future or otherwise related to your future goals), you should delve deeply into it. Gaining deep understanding takes time, and you shouldn’t feel as though you’re working inefficiently if you find yourself spending a disproportionate amount of time on it.

Interesting but not important

Intellectually curious people often have intellectual interests that don’t advance their career goals. Such interests can absorb a lot of time and hinder one’s professional success.

The question of how to balance these interests with one’s career goals is a very personal one.

In general, if there are two activities that are of comparable interest to you, but of unequal importance, you should choose the more important one.

If you find that your time is uncomfortably crowded with things that are interesting but not important, you should look for instances where you’re exerting willpower on them, and cut back on those, reserving the time that you spend doing things that you find interesting to activities that require relatively little energy, to conserve energy for doing things that it’s more difficult to get yourself to do.

Important but not interesting

Sometimes you have to do things that are uninteresting to achieve your goals. If you have trouble motivating yourself to do these things, you might benefit from our recommendations for overcoming procrastination (forthcoming). Also, consider ways that you might find these specific activities more interesting, by checking out targeted learning recommendations for those activities.

Not important and not interesting

These activities should be avoided. This point might seem obvious, but despite this, people often do engage in activities that are neither important nor interesting. This most often happens when:

  • One hasn’t carefully considered the question of whether the activity is important. For example, one might uncritically internalize the view that it’s important to learn a language because learning a language said to keep the mind sharp, without considering that there might be other more interesting or important activities that keep the mind sharp to an equal or greater extent, and therefore try to learn a language, even if one doesn’t find it interesting. There are benefits to learning a language that one can’t get from other activities: the point here is just that keeping one’s mind sharp specifically isn’t a good reason to learn a language rather than do other things.
  • The activity seems interesting at first, and one sets a goal connected with it, but then the activity turns out not to be interesting, and one feels an obligation to continue on account of having already set the goal. For example, one might hear good things about a long novel and set a goal of reading it, find that one doesn’t enjoy it, and feel pressure to plow through to the end.

On the first point, it’s important to critically reflect on whether the activities that one is involved in are important. On the second point, all else being equal, fulfilling commitments is good, because it’s good for one’s self-esteem, but one should still consider whether the cost of fulfilling the commitment is worth it, and also try not to set ambitious goals when the value of fulfilling them is questionable.

College Admissions for Homeschoolers

By Jonah Sinick

Cross-posted from Quora and the Gifted Homeschoolers Forum

If you’re considering home-schooling for high school, you’re likely wondering how it will affect your college prospects.

Public Colleges

It can be difficult or impossible to get into public colleges as a homeschooler, owing to bureaucratic requirements. For example, UC Davis writes:

The courses of homeschools and unapproved high schools are not accepted by the University of California and cannot be used to establish minimum UC admission requirements. If you are a homeschooled student or attended a California high school without a UC-approved course list, you must establish your academic record through test scores or as a community college transfer student.

While it may be possible to qualify for the UC system via test scores, it’s unclear what one’s prospects are for getting into a campus of your choice. See University of California and homeschoolers at The Well-Trained Mind.

Other public colleges are more receptive to admitting homeschoolers. For example, University of Illinois writes:

We encourage home schooled students to apply to the University…We are very interested in having talented, well-qualified applicants from a variety of settings. Home schoolers would provide a diversity of academic experiences to the campus.

If you’re considering home schooling, be sure to check out what the situation is at the public colleges that you anticipate applying to, in particular, those in your home state.

Private Colleges

Elite private colleges accept home schoolers.  The elite private college students who were home schooled appears to be smaller than the fraction of high schoolers in the general population who are home schooled. About ~3% of students are home schooled nationwide. By way of contrast:

  • Princeton reports that only 0.5% of Princeton students were homeschooled.
  • A University of Chicago student on College Confidentialreported that 13 students in his or her grade were homeschooled. University of Chicago’s class size is about 1,400, so about 1% of the students were home schooled.
  • MIT reports that less than 1% of MIT students were homeschooled.

Some possible reasons for the discrepancy are:

  1. The fraction of homeschoolers who apply to elite colleges may be significantly smaller than the fraction of members of the general population who apply to elite colleges. For example, MIT reports that less than 1% of the applicant pool consists of homeschoolers.
  2. It could be more difficult for homeschoolers to get into elite colleges on average.

On the second point, even if it is more difficult on average, that doesn’t mean that it would be more difficult for you personally. With suitable preparation for the admissions process along the lines described below, homeschoolers could have equal or better odds for getting in (though the situation is ambiguous).

Something that pushes in favor of homeschooling for admissions prospects is that if you homeschool, you’ll have more flexibility in regards to how you arrange your coursework (for example, you can pick which textbooks to use), and if you use this flexibility well, your chances of excelling could increase.

Some points to keep in mind, based on a reading of webpages of elite colleges about applying as a homeschooler:

  • Standardized test scores are weighted more heavily for homeschoolers. Some colleges encourage homeschoolers to take more than the minimum requirement of 2 SAT subject tests, and some refer to AP scores as a way for students to demonstrate their achievement. If you’re unusually capable of getting high standardized test scores, the case for homeschooling is strengthened.
  • Taking college courses at local colleges or summer programs seems to help establish a homeschooler’s academic record. It also gives a homeschooler the chance to solicit recommendations from professors who can vouch for his or her performance.
  • If you homeschool, it’s important to document your academic program.
  • Colleges expect that homeschoolers study the standard academic subjects (math, English, social studies, science and languages): if you homeschool, you shouldn’t design an overly idiosyncratic program that doesn’t include these things.
  • Some colleges want evidence that homeschoolers can integrate well with other students, presumably in the form of extracurricular activities that have a social component.
  • If you homeschool and can give a compelling reason for why you’ve done so in your college applications, this will strengthen your case for admissions.


For our research, we looked at pages published by: YaleMIT,PrincetonColumbiaUniversity of ChicagoCaltechNew York University and Homeschool Success, as well as College Confidential’s forum with relevant threads. See in particularHomeschool students’ admission rate to Harvard/Princeton/Yale and How do homeschooled students attend Ivy leagues?.


You might find the following resources helpful for learning more about college admissions for homeschoolers:

Don’t rely on the system to guarantee you life satisfaction

By Jonah Sinick

Cross-posted from Less Wrong and from Quora. Related content in the information wiki: high school: opening message and treat the system like a constraint.

A brief essay intended for high school students: any thoughts?

If you go to school, take the classes that people tell you to, do your homework, and engage in the extracurricular activities that your peers do, you’ll be setting yourself up for an “okay” life. But you can do better than that.

The school system wasn’t designed to help you achieve your goals. It wasn’t designed to optimize student welfare in general: it was cobbled together by many different actors with many different goals, from politicians to teachers to parents to colleges. It often suffers from inadequate resources. Even if the school system were optimized on average, the one-size-fits-all approach it takes means that it wouldn’t be optimized for people who differ in any relevant respect from average. Compared with what you can achieve by carefully thinking about what your goals are and how you can achieve them, following “the system” fares poorly.

KEEP IN MIND: Doing well within the system should be treated as a constraint within which you need to operate, rather than a defining feature of your life.

By putting you in this situation, society has fouled you. Yes, as you suspect, a lot of the stuff you learn in your classes is crap. And yes, as you suspect, the college admissions process is largely a charade. But like many fouls, this one was unintentional. So just keep playing. Rebellion is almost as stupid as obedience. In either case you let yourself be defined by what they tell you to do. The best plan, I think, is to step onto an orthogonal vector. Don’t just do what they tell you, and don’t just refuse to. Instead treat school as a day job. As day jobs go, it’s pretty sweet. You’re done at 3 o’clock, and you can even work on your own stuff while you’re there. — Paul Graham in What You’ll Wish You’d Known

Some subjects are more important than others


High school can give an illusion of democracy between the different subjects you study: they all seem to get equal weight in class time and in grades, so you may believe that all subjects are equally important to study. This is not true even in general: some subjects are more important to study overall, and within each subject, some topics may be more important than what school seems to suggest.

Because the method of exposition and choice of topics in school is likely suboptimal, it generally makes sense to learn the important topics well ahead of time, and deal with the others as needed to do well on the courses.

It’s important to choose your extracurriculars well

Many common extra-curricular activities (in particular, many school clubs) are not the most productive uses of time. If you go with the flow and sign up for the activities that the people around you are signing up for, you may sacrifice the opportunity to develop yourself and accomplish far more.

Consider alternatives to high school

Consider homeschooling and online school. Depending on your situation, these may be superior alternatives to regular high school for you.

Methods for treating depression

By Jonah Sinick

Cross-posted from Less WrongQuora and our wiki page on the subject.

Many people struggle with depression, and I’ve been trying to formulate some general advice for treating it as a part of my work for Cognito Mentoring. I’m hesitant to write about the subject on account of lacking professional expertise, and so am especially interested in getting feedback on my thinking on the subject. I’ve written up some tentative thoughts below. The reader being addressed is somebody who’s struggling with depression, with a special focus on high school students.

The research on the efficacy of different depression treatments is only moderately strong. I’m not confident in my remarks below: they reflect an attempt to come to the best conclusion possible with the evidence available.

  • Any given treatment of depression only works for a fraction of depressed people, suggesting that causes of depression may be diverse.
  • Cognitive behavioral therapy (CBT) stands out for its combination of efficacy, potential for producing lasting changes, low cost, and absence of averse side effects.
  • It’s worth experimenting with different treatment methods to see which works best for you, with the possible exception of antidepressants.
  • Combining treatment methods may be more impactful than applying one individually.

Cognitive behavioral therapy

According to The empirical status of cognitive-behavioral therapy: A review of meta-analyses, there’s a strong base of evidence that CBT has a large effect of reducing depression on average. There’s evidence that the benefits extend beyond the duration of the treatment. Studies generally seem to show that CBT is as effective as antidepressants at reducing depression (some find that CBT is more effective, but the evidence is unclear).

CBT has the advantage that one can learn to do the exercises on one’s own, without the expense of a therapist or a psychiatrist. The evidence for the efficacy of self-help CBT materials is weaker than the evidence for the efficacy of therapist-administered CBT, but this may reflect insufficient commitment on the part of patients who were assigned to use self-help CBT materials. The clinical effectiveness of CBT-based guided self-help interventions for anxiety and depressive disorders: A systematic review finds that for self-selected users of self-help CBT materials, the treatment was efficacious (though the quality of the studies was not high). If you’re sufficiently committed, the expected benefits that you stand to gain from self-help CBT may be enhanced substantially.

A book for learning CBT on your own is Feeling Good: The New Mood Therapy by David Burns.


It’s widely believed that exercise alleviates depression. There’s an intuitive basis for thinking this: exercise often gives one a runner’s high.

In the Cochrane review Exercise for depression, the authors find that on average, studies show a moderate-sized effect, but that when one restricts consideration to the highest quality studies, one sees a significantly smaller effect, suggesting that the efficacy of exercise for treating depression may be overstated.

The main downside to exercise is that it takes time, but it may be worth it even if the effect size is small if alleviating depression is sufficiently high priority for you.

Talk therapy

Talk therapy has been shown to reduce depression on average. However:

  • Professional therapists are expensive, often charging on order of $120/week if one’s insurance doesn’t cover them.
  • Anecdotally, highly intelligent people find therapy less useful than the average person does, perhaps because there’s a gap in intelligence between them and most therapists that makes it difficult for the therapist to understand them.

House of Cards by Robyn Dawes argues that there’s no evidence that licensed therapists are better at performing therapy than minimally trained laypeople. The evidence therein raises the possibility that one can derive the benefits of seeing a therapist from talking to a friend.

This requires that one has a friend who

  • is willing to talk with you about your emotions on a regular basis
  • you trust to the point of feeling comfortable sharing your emotions

Some reasons to think that talking with a friend may not carry the full benefits of talking with a therapist are

  • Conflict of interest — Your friend may be biased for reasons having to do with your pre-existing relationship – for example, he or she might be unwilling to ask certain questions or offer certain feedback out of concern of offending you and damaging your friendship.
  • Risk of damaged relationship dynamics — There’s a possibility of your friend feeling burdened by a sense of obligation to help you, creating feelings of resentment, and/or of you feeling guilty.
  • Risk of breach of confidentiality — Since you and your friend know people in common, there’s a possibility that your friend will reveal things that you say to others who you know, that you might not want to be known. In contrast, a therapist generally won’t know people in common with you, and is professionally obliged to keep what you say confidential.

Depending on the friend and on the nature of help that you need, these factors may be non-issues, but they’re worth considering when deciding between seeing a therapist and talking with a friend.

Light therapy

If your depression is seasonal in nature, you may benefit from light therapy. According to The Efficacy of Light Therapy in the Treatment of Mood Disorders: A Review and Meta-Analysis of the Evidence

Randomized, controlled trials suggests that bright light treatment and dawn simulation for seasonal affective disorder and bright light for nonseasonal depression are efficacious, with effect sizes equivalent to those in most antidepressant pharmacotherapy trials.

The Cochrane review Light therapy for non-seasonal depression finds that even for non-seasonal depression, light therapy reduces depression on average, though the effect is modest.


The Cochrane review Newer generation antidepressants for depressive disorders in children and adolescents found that antidepressants increased recover rates from 38.0% to 44.8% (over a specified duration) relative to a placebo. This understates the capacity for anti-depressants to reduce depression, because placebo treatment is also better than no treatment, and if one antidepressant doesn’t work, you can try another one.

If you’re an adolescent, the case for using an antidepressant is weakened by the fact that antidepressants are thought to increase the risk of suicide in adolescents. Some evidence for this comes from the Cochrane review above, which found that antidepressants increased suicide rates by 58%. The Food and Drug Administration requires that manufacturers of antidepressants include a warning that antidepressants can increase the risk of suicide in children, adolescents and adults under age 25. See antidepressants and suicide risk for more information. The size of the increased risk in “absolute” terms varies from person to person, because some people are more likely to commit suicide than others. But in a given case, the increased risk of suicide may not be worth the potential benefits.

If you’re under 25 years old, particularly if you’re an adolescent, it seems reasonable to try other methods of treatment before considering antidepressants.

Effective public college tuition vs. private college tuition

By Jonah Sinick

Cross-posted from Less Wrong. See also Choosing between a public college and a private college.

Harvard charges $42k/year and $61k/year including room, board, books and personal expenses. UC Berkeley charges $13k/year in tuition and $33k/year including room, board, books and personal expenses. As a part of research for Cognito Mentoring, I looked at UC Berkeley’s financial aid calculator and Harvard’s financial aid calculator to get a sense for the effective costs of attending the two institutions, and was surprised that it appears as though for people whose parents make between 80k/year and $160k/year, when financial aid is factored in, it’s more expensive to attend Berkeley than Harvard. See the figures below. A cursory glance at financial aid calculators for other elite private universities and public universities gives seems to give broadly similar to those of Harvard and UC Berkeley respectively. I’ve made a number of simplifying assumptions in filling out the forms I may be making errors of one kind or another (whether conceptual or otherwise), and would appreciate any feedback. About 83% of American families make less than $160k/year, so it seems that for 4 out of 5 Americans, were they admitted to an elite college, cost wouldn’t be a deterrent. In practice, students who go to elite colleges come from disproportionately wealthy families: reports that 62% of Harvard students get financial aid in the form of grants at all, which is less than the figure of 83% (as one would expect). The average grant size is $41,555, and Harvard reports that 20% of students don’t pay at all, suggesting that the amount of financial aid that students receive is very high variance. It would seem that the people for whom the UC Berkeley vs. Harvard choice would be the hardest on financial grounds are families that make e.g. $200k/year and have $300k in saving. Harvard No parental savings Parental income / effective cost

  • $80k / $8,600
  • $100k /  $12,600
  • $120k / $16,600
  • $140k / $18,600
  • $160k / $24,600
  • $180k / $34,300
  • $200k / $49,200
  • $220k / $60,850
$300k parental savings
Parental income / effective cost
  • $80k / $18,600
  • $100k / $22,600
  • $120k / $26,600
  • $140k / $28,600
  • $160k / $34,600
  • $180k / $44,300
  • $200k / $60,850

UC Berkeley Here I needed to enter the amount that parents were taxed, and used a figure of 25% of gross income. No parental savings

  • $80k / $12,972
  • $100k / $17,419
  • $120k / $23,092
  • $140k / $28,765
  • $160k / $32,706
$300k parental savings
  • $80k / $26,337
  • $100k / $32,009
  • $120k / $32,706

Finance as a career option

By Jonah Sinick

Cross-posted from Less Wrong.

As a part of our research for Cognito Mentoring, Vipul Naik and I compiled a draft of a page on finance as a career option. Because some Less Wrongers are planning on earning to give and finance is a commonly considered career option for those who are earning to give, I thought that it might be of interest to the Less Wrong community.  See also 80,000 Hours’ blog posts on finance as a career.

Finance is a popular career option amongst graduates from elite universities: with about 20% of Harvard, Princeton and Yale graduates getting jobs in the field. Economist and New York Times columnist Tyler Cowen hassuggested that people with high intelligence have a significant edge in the field.

Finance has a number of sectors. Careers in Finance breaks finance down into Commercial Banking, Corporate Finance, Financial Planning, Hedge Funds, Insurance, Investment Banking, Money Management, Private Equity and Real Estate. The nature of jobs in finance varies considerably from sector to sector.

Our remarks below concern jobs in higher paying jobs in finance, such as jobs in investment banking, private equity and at hedge funds.


Salaries in investment banking, private equity and hedge funds can be very high:

  • Careers in Finance reports that somebody with ~5 years of experience at an investment bank typically makes ~$450K/year.
  • In 2006, Richard Rusczyk (formerly an employee at hedge fund DE Shaw) wrote “While it’s not expected that you’ll make a million dollars in year 5, neither is it impossible. If you’re not making at least middle six-digits by year 6-8 as a quant in a hedge fund, then something has gone very wrong for you.”
  • Stock market trader Joe Mela wrote that “If you’re good at [being a trader], you can make millions 5 years down the line.”
  • Some of the most wealthy people in the world, such as George Soros (net worth $23 billion) and James Simons (net worth 11.7 billion) made their money in these fields.
James Miller points out that the high income is moderated by high marginal taxes as well as the high cost of living in New York city (where most finance firms are).

Work-life balance

The high pay in investment banking should be viewed in the context of the grueling hours on the job. According to IBankingFAQ,

Analysts can routinely expect to work 90-100 hours per week or even more. A typical work day during the week might be 10:00 am until 2:00 am. Analysts will also typically work both days on the weekend. During a particularly busy time […] it is not uncommon for Analysts to work all night…

According to a highly upvoted Quora response:

Your physical health will almost certainly suffer. The extent to which it suffers depends on how careful you are with your diet, whether you make time to exercise, how much sleep you get, and how well or poorly you deal with stress. Most people have at least partial burnouts.

The quotations are referring to the hours of work in entry level positions. We have not been able to find substantive information on number of hours that more senior employees work per week. Our impression is that the number is smaller, but not dramatically so.

The number of hours per week that employees at hedge funds and proprietary trading firms appear to be smaller. In 2006, Richard Rusczyk (formerly an employee at hedge fund DE Shaw) wrote:

I would say the average work week at places like Shaw or Jane Street is closer to 55 hours, maybe lower (unless things have changed dramatically).

This is in consonance with what we’ve heard from two other acquaintances who have worked at a hedge funds and proprietary trading firms.

Job security

Job security in the more lucrative sectors of finance may be poor. At the 80,000 Hours blog, Carl Shulman wrote:

While a physician will usually remain a physician throughout her career, lucrative jobs in investment banking and management consulting often come with “up or out” career paths. Either one is promoted “up,” with incomes growing exponentially, as one can see in these links for banks and consultancies, or one is fired “out” and must seek work at a lesser firm or leave the industry. Since most employees will not be around for very long, one must take into account one’s “exit options” in deciding whether to enter.


Some people have characterized finance as having a very abrasive culture. Others have disputed this characterization. The culture of finance firms probably varies substantially from sector to sector and firm to firm.

  • Liar’s Poker by Michael Lewis gives “an unflattering portrayal of Wall Street traders and salesmen, their personalities, their beliefs, and their work practices.” The book reports on the situation in the 1980’s, and may be out of date.
  • Former DE Shaw employee Cathy O’Neil gives an unflattering characterization of the culture at DE Shaw at her blog. (However, see this comment by Ben Kuhn.
  • Trader Joe Mela wrote at the 80,000 Hours blog “As a rule, traders are highly switched-on, pleasant to talk to, and are great people to learn from. I do not think trading is the optimal career path if you’re trying to meet highly altruistic people, but the Gordon Gekko stereotype is pretty far from the truth.”

Social value

Actors in finance produce both social value and social disvalue, and it seems difficult to make a general statement about whether the typical worker at an investment bank (for example) does more good or harm. The situation probably varies from sector to sector of finance. We give some relevant considerations below.

The correlation between income and social value

In general, there’s a correlation between income and social value contributed. The fact that the earnings of people who work in finance are high raises the possibility that workers in finance contribute high social value.

People and organizations sometimes have a temporary need for money to accomplish their goals, and people and organizations are sometimes willing to lend money for a fee. Actors in finance who enable these transactions benefit both the borrower and the lender, and are paid accordingly. Similarly, actors in finance who lend money themselves benefit the borrowers and are paid accordingly. The proportion of activity in finance that fits this basic model is unclear. Many of the transactions in finance are many steps removed from the basic activity of enabling borrowers and lenders to connect. Some of these transactions indirectly enable borrowers and lenders to connect, and others don’t. It can be very difficult to tell which are which from the outside.

Unproductively increasing the efficiency of the market

If a company is looking for an investor and nobody is willing to invest, this is bad for the company. If the company is deserving of an investment, you spot this, and nobody is willing to invest, then you can benefit the company and make a profit by investing.

But suppose there are actors who are willing to invest in the company, and you invest in the company a tiny bit faster than the other actors. The company doesn’t benefit much from this, because it would have gotten an investment anyway. The other people who would have invested are harmed by this, because they can’t make a profit. So the social value that you contribute is much smaller than it would have been if nobody had been willing to invest within the same rough timeframe.

Some activity in finance takes this form. High frequency trading is a candidate for a sector of finance that makes money through buying and selling stocks a little bit faster than others, without contributing much social value. The transactions that high frequency trading firms make occur on a time scale of a fraction of a second, and it’s unclear that enabling people to buy or sell a stock a fraction of a second faster helps them to an appreciable degree, even after taking into account the number of people involved.

Pushing off tail risk onto the government

Some firms in finance are “too big to fail” in the sense that if they were to go bankrupt, the whole economy would suffer enormously, because of their interconnectedness. When they’re in danger of bankruptcy, the government will often lend or give them money to keep them afloat. Because the firms are aware that they’ll likely be supported by the government in the event that they make bad investments, they’ll sometimes make very risky investments, that have high upside to them if they pan out well, with the expectation that if they pan out poorly, the government will cover their losses. Such actors effectively make their money at the expense of the taxpayers, thereby contributing negative social value.

Not all actors in finance behave in this way.

Causing financial crises

As above, sometimes “too big to fail” firms will take risks that they’re not able to handle, with the expectation that the government will cover their losses. If they’re in danger of bankruptcy and the government ”doesn’t” cover their losses, this can precipitate a financial crisis. In particular, the collapse of Lehman Brothers is thought to have played a major role in the 2008 financial crisis. In this way, actors in finance may be able to cause damage far out of proportion with their earnings.

As above, not all actors in finance behave in this way.

Some people have raised the possibility that high-frequency trading could cause a financial crisis on account of increasing the stock market’s volatility, but others have disputed it, or even claimed that high-frequency trading reduces the stock market’s volatility.

Earning to give

Because the earnings are high in finance, finance has been highlighted as a promising career track for people who want to earn to give large amounts of money to charities. 80,000 Hours Executive Director Ben Todd has argued that the harm one might do in finance is small relative to the good that one can do by donating 50+% of one’s income to highly effective charities.