Seeing the forest to save the trees: An experiment on the effect of psychological distance on sustainable investing preferences

Abstract

To address the climate crisis on a societal level we need to understand how citizen behaviour can contribute to sustainable goals. Private investing offers a promising case of potential sustainable citizen behaviour. However, former research has pointed out that citizens do not always translate their sustainable values into action. Insight into the hurdles citizens face in acting on their values is needed for optimizing sustainable investing behaviour. This study pioneers in investigating the decision-process of sustainable private investing and specifically the translation of values into preferences. The existing insights into the drivers that underlie sustainable investing are scarce and inconsistent. Theory of psychological distance might explain the inconsistencies of these insights. Psychological distance is expected to increase the weight one places on values, such as sustainability, versus practicality concerns. It is therefore hypothesised that investors have more sustainable preferences when they consider an investment they perceive higher psychological distance to. A 2x2 factorial survey experiment among a representative sample of Dutch private investors tests this assumption for the four dimensions of psychological distance: temporal, spatial, social, and hypothetical distance. Results do not provide evidence of an effect of psychological distance for investment preferences. Rather, participants express their sustainable values in their preferences, invariant for the level of psychological distance. Methodological considerations could explain these results, however to a limited extent. It is well possible that psychological distance does not have a true effect in real financial decision-making environments. The results imply that psychological distance theory, mostly tested in controlled settings, do not generalise to more contextualised and/or financial settings. The study moreover indicates that citizens do use easy-view information, but neglect other when they make investment decisions. Most importantly, this study implies that individuals are capable of translating sustainable values into investment preferences. This insight emphasizes the large potential of sustainable citizen behaviour for navigating the climate crisis.