Do investors follow their heart or their wallet?
When investors choose where to put their money, are they driven by financial returns or personal values? New research from the Centre for Sustainability suggests the answer is both.
We know consumers are guided not only by their wallets but also by their hearts. But what about investors? Investment decisions are often thought of as more calculated, with risk and returns taking center stage. But if our values shape how we spend our money, why wouldn't they also shape how we invest it?
In a new paper, Meike Janssen, Emma Sjöström, Kristjan Jespersen, and Kristian Roed Nielsen tested this with 547 active US retail investors, asking them to choose between investments differing in financial, social, and environmental performance.
A few things stood out:
Money matters - a lot. Risk and expected revenue growth were by far the strongest drivers of investment decisions. But values do too. Investors with stronger biospheric values placed more weight on environmental performance, those with stronger altruistic values on social performance, and those with stronger egoistic values on financial performance.
Values seem to shape what matters to us. Two investors can look at the same opportunity but give very different weight to the information in front of them.
Context mattered too. Environmental performance received more weight for energy ventures, while social performance received more weight for food ventures, although why remains an open question, as this was an exploratory part of their analysis.
So, heart or wallet? Both. But how much weight investors give each depends, at least partly, on what they value.
Their paper, “Do Investors Follow Their Heart? The Role of Value Congruence in Guiding Investors’ Decisions,” is now Open Access and can be read below.
To see more from the Centre for Sustainability click here.