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Thinking: how much money would it take to persuade you to trade away your ethical beliefs?

Document Cited in Related
Vincent
AuthorBerry, Rob
PositionINFORM

In their widely cited 1994 paper in the Journal of Applied Corporate Finance, Michael Jensen and William Meckling argued that people care not only about consuming goods and services, but also about "respect, honor, power, love and the welfare of others" (1). This represented a widening of the traditional economist's view of the sources of utility. But they also claimed that the willingness to trade off one source of utility against another is universally "the systematically rational part of human behaviour". In other words, everything--including "respect, honor" and the rest--has a price.

Dr Fannie Yeung of Hull University Business School and I have investigated their claim that trade-off behaviour is ubiquitous. We identified investors in an ethical fund as a group whose actions should offer a strong test of the theory. We gave these ethical investors a set of hypothetical investments, each one a combination of a level of financial performance (a large, moderate or small gain, or a small loss) and either the presence or absence of good ethical performance. We asked them how much money they would put into each option.

Investors can have different ethical concerns, so we encouraged them to interpret "ethical performance" in terms that mattered to them. One investor may have focused on pollution, for instance, while another may have thought more about labour exploitation.

We used conjoint analysis to investigate their responses. This technique uses the amount invested to measure the utility derived from an investment. The method enabled us to compare the utility loss from a shift from presence to absence of good ethical performance with that from a shift from large to small financial gain.

Our findings indicate that thinking about ethical investors as a single group is unwise. Our sample could be split into three distinct sub-groups. The first of these conformed closely to our prior belief about how ethical investors would act: no amount of financial gain was sufficient to compensate for a drop in ethical performance. For these investors, trading...

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