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The confusion of taste and consumption: Evidence from a stated-choice experiment

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  • Kleffel, Philipp
  • Muck, Matthias

Abstract

In this paper, we conduct a stated-choice experiment with German retail investors to examine how labeling sustainability information as financially material or immaterial influences investment decisions. Results reveal a strong non-pecuniary preference for sustainability. However, emotional affect leads some investors to erroneously project sustainability information onto firms’ financial performance, regardless of financial materiality. When poor sustainability ratings are labeled as financially material, investors demand further an additional return premium, indicating a misinterpretation of these labels as financial indicators. This bias is particularly evident among investors who incorporate sustainability for pecuniary reasons in the experiment but do not use such information in real-life investing. Our findings suggest that while sustainability labels can guide investor behavior, they also risk distorting financial expectations. This underscores the need for careful design in sustainability disclosure practices and better investor education on the implications of sustainability information.

Suggested Citation

  • Kleffel, Philipp & Muck, Matthias, 2024. "The confusion of taste and consumption: Evidence from a stated-choice experiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:beexfi:v:43:y:2024:i:c:s2214635024000790
    DOI: 10.1016/j.jbef.2024.100964
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    Keywords

    Sustainable investing; Stated choice experiments; Materiality; Salience; Behavioral finance; Sustainability reporting; Investor behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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