Inertia and Discounting in the Selection of Socially Responsible Investments: An Experimental Investigation

41 Pages Posted: 5 Feb 2012

See all articles by Pat Auger

Pat Auger

University of Melbourne Business School

Timothy M. Devinney

University of Manchester - Alliance Manchester Business School

Grahame Dowling

Australian Graduate School of Management

Christine Eckert

University of Technology Sydney (UTS) - School of Marketing

Nidthida Lin

School of Business, University of Western Sydney

Date Written: January, 30 2012

Abstract

Socially responsible investment funds (SRIs) have grown dramatically as an investment alternative in most of the developed world. This is an important development from a managerial perspective since the criteria used to qualify for inclusion in these funds could influence the decisions and behaviors of managers with regards to their CSR practices. However, little is known about how investors select SRI funds and how they allocate their investments in these funds. This study uses a structured experimental approach to determine if the decision-making process of investors to invest in SRIs is consistent with the decision-making used for conventional investments. Our theoretical framework draws on two widely studied concepts in the decision-making and investment literature, namely, inertia and discounting. For our 704 respondents we find that inertia plays a significant role in the selection of SRI funds and that they systemically discount the value of SRIs. Furthermore, the level of discounting of SRIs was positively related to the risk level of the investments. Our results suggest that SRIs need to be designed to cater to the risk/return profiles of investors and that these investors need to be better informed about the performance of SRIs versus conventional investments in order to reduce their systematic discounting.

Keywords: Socially Responsible Investment, Pensions, Choice Modelling

JEL Classification: C25, D10, M20, G11, G23

Suggested Citation

Auger, Pat and Devinney, Timothy M. and Dowling, Grahame and Eckert, Christine and Lin, Nidthida, Inertia and Discounting in the Selection of Socially Responsible Investments: An Experimental Investigation (January, 30 2012). Available at SSRN: https://ssrn.com/abstract=1995879 or http://dx.doi.org/10.2139/ssrn.1995879

Pat Auger

University of Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia
+61 3 9349 8194 (Phone)
+61 3 9349 8133 (Fax)

Timothy M. Devinney (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Grahame Dowling

Australian Graduate School of Management ( email )

Gate 11, Botany Street, Randwick
Sydney, NSW 2052
Australia

Christine Eckert

University of Technology Sydney (UTS) - School of Marketing ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

Nidthida Lin

School of Business, University of Western Sydney ( email )

Locked Bag 1797
Penrith, NSW 2751
Australia

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