The Moral Preferences of Investors: Experimental Evidence

Abstract

We characterize investors' moral preferences in a parsimonious experimental setting, where we auction stocks with various ethical features. We find strong evidence that investors seek to align their investments with their social values ("value alignment"), and find no evidence of behavior driven by the social impact of investment decisions ("impact-seeking preferences'"). First, the willingness to pay (WTP) for a stock is a linear function of corporate externalities, and is symmetric for positive or negative externalities. Second, this WTP does not change when corporate externalities are made contingent on investors buying the auctioned stock. Our results are thus compatible with a utility-maximization model where non-pecuniary benefits of firms' externalities only accrue through stock ownership, not through the actual impact of investment decisions. Finally, non-pecuniary preferences are linear and additive: willingness to pay for social externalities is proportional to the expected sum of charity transfers made by firms (even if some of these transfers are negative). 

Keywords: Socially Responsible Investing, Social Impact, Value Alignment, Deontology, Consequentialism

JEL Classification: G02, G11