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

Purpose: Socially responsible investment funds (SRIs) have grown dramatically as an investment alternative in most of the developed world. 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. Our theoretical framework draws on two widely studied concepts in the decision-making and investment literature, namely, inertia and discounting. Findings: We 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: 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 to reduce their systematic discounting. Originality/value: Unique experimental approach applied to investment alternatives in a manner that captures individual level variation.