Inertia and discounting in the selection of socially responsible investments: An experimental investigation

Abstract

Purpose

Socially responsible investment (SRI) funds have grown dramatically as an investment alternative in most of the developed world. The paper aims to discuss this issue.

Design/methodology/approach

This study uses a structured experimental approach to determine if the decision-making process of investors to invest in SRIs is consistent with the process used for conventional investments. The theoretical framework draws on two widely studied concepts in the decision making and investment literature, namely, inertia and discounting.

Findings

The authors find that inertia plays a significant role in the selection of SRI funds and that investors systemically discount the value of SRIs.

Research limitations/implications

The 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 vs conventional investments to reduce their systematic discounting.

Originality/value

Unique experimental approach applied to investment alternatives in a manner that captures individual level variation.

Citation

Auger, P., Devinney, T., Dowling, G. and Eckert, C. (2016), "Inertia and discounting in the selection of socially responsible investments: An experimental investigation", Annals in Social Responsibility, Vol. 2 No. 1, pp. 29-47. https://doi.org/10.1108/ASR-07-2016-0006