Discover more from Klement on Investing
We only have a limited amount of morality
Last Monday, I wrote about my indignation with the campaign to abolish plastic straws. The reason for this indignation is rooted in what researchers call moral licencing. Craig Mackenzie and Alan Lewis interviewed investors in the late 1990s about their concerns for the environment and other ethical issues and their investment habits. They found that while many of their interviewees were concerned about the environment, for example, they were unwilling to sacrifice financial return to create a more ethical investment portfolio. In reaction to this ethical dilemma, investors engaged in a core-satellite strategy, where they invested some of their money in ethical or sustainable funds and the rest in conventional funds. The allocation to ethical funds provided the investors with a licence to invest in unethical or conventional funds to achieve other goals.
Over the last twenty years, many more studies on moral licencing have been done and their findings are pretty unanimous. It seems that we have only a limited reservoir of morality in us and the more we spend it in one area, the less we have available in other areas. Worse, people who behave morally, afterwards feel like they have the right to be act in an unsocial or even mean way to other people.
Sonya Sachdeva, Rumen Illiev and Douglas Medin asked people to describe themselves in either a positive or a negative way. Afterwards, they were asked to donate to a charity. The people who described themselves in a positive way donated only about a fifth of what the people donated who described themselves in a negative way. The feeling of superiority that was created by an affirmative self-description made the participants less altruistic.
Even worse, Nina Mazar and Chen-Bo Zhong from the University of Toronto showed that buying organic produce in a grocery store makes people more inclined to lie and cheat. They asked participants in their study to shop for groceries in a simulated store. Half of the participants purchased items in a store with predominantly organic produce while the other half purchased items in a store with predominantly conventional produce. Afterwards the participants were asked to participate in a visual experiment where pictures were shown to them with a random number of dots to the left and right of a dividing line. After they had looked at a series of these pictures, they were asked to report how many of these pictures had more dots on the right. The trick: The participants earned ten times more money when they indicated that there were more dots on the right than when they indicated that there were more dots on the left. On average, 40% of the pictures shown had more dots on the right and those participants who shopped for conventional groceries reported on average 42.5% of the pictures as having more dots on the right. Those who shopped in the organic store, on the other hand, identified 51.6% of the cases as having more dots on the right-hand side. They were lying in order to get more money…
Increased lying after moral behaviour
Source: Mazar and Zhong (2010).
Unfortunately, this moral licencing problem extends to our investment behaviour. A recent study by Ann-Christine Brunen from the University of Cologne followed consumers for a full year and recorded both their consumption and their investment behaviour. She found that moral behaviour, such as buying predominantly organic food, donating to charities or supporting small local businesses reduced their investments in socially responsible and ESG funds and stocks. People who purchased more than 50% of their groceries in organic food markets (i.e. the Whole Foods crowd) were 14% less likely to invest in ESG funds. Again, positive behaviour gave them the moral licence to act unsustainably in other domains.
This is why I think movements like the ones to ban plastic straws are counterproductive. They deplete our reservoir of moral behaviour for actions that have very little if any meaningful impact on the environment or our society. We should rather focus on what matters most and where we can get the biggest bang for the buck, so to speak.