Knowledge, Fear and Beliefs: Understanding Household Demand for Green Investments
35 Pages Posted: 5 Apr 2019 Last revised: 12 Apr 2019
Date Written: March 15, 2019
We explore whether households understand the tradeoffs that they face when they invest in funds that purport to be environmentally responsible. We conduct a large scale survey of Swedish households to measure how much they understand about the science behind environmental impact, their financial literacy, as well as their understanding of their own knowledge of these matters. We find only moderate correlation in knowledge between environmental and financial knowledge, but find the correlation of overestimation across domains to be sizable. Overestimation of environmental knowledge crowds out actual knowledge when explaining fears of climate change and reported recycling behavior, and is also strongly associated with beliefs that environmentally sustainable firms generate higher returns and with the willingness to pay higher fees for sustainable mutual funds.
Keywords: sustainability; overconfidence; environmental risks
JEL Classification: G02; G11; G18
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