social preferences in financial markets Flashcards
what is social investing?
social preferences: fairness, trust, empathy, reciprocity, non-isolated, connected
two main things about people: not completely self interested, emotional.
implications of social preferences in financial markets = social investing
what is philanthropic venture capital?
thinking beyond the money, investing to help people
what types of finance do socially focussed/mission driven investors seek?
charities/philanthropists
grants
crowdfunding
what is the middle ground approach between socially focused and commercially focused investors? where might they draw finance from?
social entrepreneurs
from social investors/social banks/social venture capitalists, but also from standard investors/banks/venture capitalists. also from crowdfunding
what characteristics describe social entrepreneurs?
passionate
emotional
mission-driven
thinking beyond the money, but with an eye on the finance
need to be sustainable - if bankrupt can’t help anyone!
what are social banks?
invest only in socially relevant businesses
tend to lend at lower rates than commercial
despite higher risks… irrational?
more forgiveness of loans/less monitoring - more trust
compare with microfinance (services provided to people with no other options, low income e.g.) — high rates/greater squeeze on borrower.
what is a social entrepreneur?
interested in social impact and cashflow (or sustainability)
utility function combo of material payoff and a parameter relating to social payoff/beyond the money. interesting how this is measured…
what does the literature on social investing say?
game theory model of matching standard borrowers and motivated borrowers, standard banks and social banks, standard projects, social projects
if social impact outweighs lower economic return: full credit market segmentation.
experimental evidence - 2012 paper - banks with lower rates have higher empathy for entrepreneur. more forgiveness when things go wrong, reciprocity in terms of repayment of debt where possible
what is Pilaj’s nudge theory?
pilaj 2017
bounded rationality - barriers to investing
pilaj - investors have an inherent desire to invest socially, but bounded rationality
leads to intention-pratice gap
nudge to overcome barriers: simple questions from financial advisers
what does Fairchild’s social investing, ethical mindsets and nudges paper look at?
social preference theory rather than bounded rationality and assumption everyone wants to invest socially. not fully self-interested
altruism, warm-glow, fariness, empathy
extrinsic (reputation building, appeals to customers, legal requirements) vs intrinsic motivation - benabou and tirole (2009)
does the motivation really matter if society generally benefits?
RQ1 - can investors be placed upon a continuum from pure financial investors through a mix, through to pure social investors?
RQ2 - can investors be nudged?
what is the set-up for Fairchild’s paper on social investing and nudges?
social investing and some experimental work
social and impact investing in financial market - investment choices have become increasingly complex
social investors often consider wide range of social factors in addition to financial return when making decisions
nudges (Pilaj, JBE 2017) has called for increased focus on testing these mixed financial and social motives of investors, and whether nudges can be effective nudging investors towards social investments - ethical?
what were the results from Fairchild’s paper on social investing and nudges?
eye tracking - which line are they looking at? are they fixated on a certain one? how much they looked financial line vs social line
found everyone looking at finanical line more often than social.
students much more dispersed than trustees.
nudge - images flashing up on screen as experiment goes. financial images, netrial images, positive social images, negative social images
financial images pushed people away from social minded, social images nudge people towards social minded.
negative social images stronger than positive.
conclusions - investors can be measured for social mindedness, and can be nudged.
goes against idea that you can only nudge people if it’s already sort of in their mind.
