EXCAVACION DE ZANJAS PARA CIMIENTOS TERRENO

The primary objective of this thesis is to answer the question: Can investors’ social preferences and personality traits help explain investment decisions? To this end I presented three empirical chapters (chapters 2 to 4), in which I investigated this question with different measures, specifically I addressed this question in each chapter as follows.

In chapter 2, I investigated whether unconditional social preferences - measured with the 'SVO slider measure' (Murphy et al. 2011) - can help explain investors' engagement in SRI. I measured engagement in SRI with three distinct measures: (1) 'interest' in investing in SRI (2) the likelihood of ever having held such investment, and (3) the proportion of such investment in the total investment portfolio currently held. I found robust evidence for a positive association between social preferences and the first two measures of engagement in SRI - general interest in SRI, and the likelihood of having invested in SRI - but no association between social preferences and the proportion of responsible investments in the portfolio currently held.

Subsequently, in chapter 3, I investigated whether personality traits, related to prosocial behaviour, can help explain investors' engagement in SRI. To measure engagement in SRI I used two of the measures that were also investigated in chapter 2: (1) 'interest' in SRI investing, and (2) the likelihood of ever having held such investments. I examined investors' personalities with four different personality inventories pertaining to four different, but related, personality frameworks. I employed one measure - the Big Five Short (Gerlitz and Schupp 2005) - pertaining to the most widely researched personality framework - the Big Five (Ferguson et al. 2011). I used one measure - the HEXACO-60 (Ashton and Lee 2009) - belonging to a recently proposed alternative framework to the Big Five, the HEXACO personality framework (Lee and Ashton 2004). Additionally, I include two personality inventories that measure personality traits, which are relevant to prosocial behaviour but have received little attention in the literature: Empathy, and the 'dark side' of personality (i.e. aversive personality traits) (Ferguson et al. 2011). I measured investors' empathy with the Interpersonal Reactivity Index (Davis 1980; 1983) (Davis 1980; Davis 1983). And lastly, I measured investors' aversive personality traits with a

measure - the Short Dark Triad (Jones and Paulhus 2014) - for the so-called 'Dark Triad' of personality: Machiavellianism, Psychopathy, and Narcissism (Paulhus and Williams 2002). The main findings in chapter 3 can be summarised as follows. I found a significant positive association of Big Five Openness but no association of the prosocial trait Agreeableness with investors' self-reported interest in investing and with the likelihood that investors have held SRI investments. I also found a significant positive association of the prosocial HEXACO traits - Honest-Humility, Agreeableness, and Emotionality - with investors' self-reported interest in investing in SRI. Further, I found significant positive association of the empathy trait Empathic Concern with investors' self-reported interest in investing, and with the likelihood that investors have invested in SRI. Lastly, I found a significant negative association of Machiavellianism, and a significant positive association of Psychopathy with the likelihood that investors have invested in SRI at some point in the past.

Lastly, In Chapter 4, I investigated whether personality traits help explain investors’ decisions to invest in assets that differ in their risk attributes. Specifically, I examined whether traits from three personality frameworks - the Big Five, the HEXACO, the Dark Triad, all thought to be associated with risk taking— are related to investors' decisions to invest in asset classes that differ in their risk attributes. I constructed four different measures of financial risk taking: (1) whether an investor invests in stocks directly, (2) the aggregate share of the investor's portfolio invested in stocks directly and indirectly through mutual funds, (3) the aggregate share of the investor's portfolio invested in stocks, derivatives and hedge funds, and (4) the aggregate share of investor's portfolio held in cash and in savings accounts - a measure for low-risk. Although I found some evidence of some personality traits being associated with the measures of financial risk taking, not one personality trait is consistently associated with any of the four measures of financial risk taking. I therefore concluded that personality traits seem not to be very relevant investor characteristics when it comes to financial risk taking.

Each of the three empirical chapters contains its own conclusion and discussion section, the aim of this chapter, therefore, is to consolidate the findings of the three chapters in light of the contributions to the extant literature as well as pointing to fruitful avenues for future research, and highlighting the shortcomings.

The remainder of this chapter is structured as follows. First the findings regarding the association of investors' prosocial tendencies with SRI are discussed. Second, the findings regarding personality and financial risk taking are discussed.

Thereafter, the limitations of this thesis are discussed. Finally, this thesis is concluded.

The results obtained from the analysis in chapters 2 and 3, together, show that prosocial tendencies play a part in investors’ decisions to engage in SRI. In chapter, 2 I demonstrated that stronger social preferences increase the likelihood that investors have invested in SRI in the past, but stronger social preferences are not associated with investors' dedicating a larger proportion of their portfolio to SRI. Additionally, in chapter 3, I showed that personality traits related to prosocial behaviour help explain investors' engagement in SRI. In all of the analyses I controlled for investors' financial expectations, demonstrating that prosocial tendencies explain SRI engagement next to motivations related to the pursuit of risk-adjusted returns.

While the data does not allow me to ascertain whether prosocial tendencies, measured by personality traits, lead investors to dedicate a larger proportion of their portfolio to SRI, the results reported in chapter 2 suggest that this is not the case, at least with regards to social preferences. Although the pattern I observe in chapter 2 with regards to social preferences is consistent with a 'warm glow' interpretation (i.e. individual investors might be motivated out of pro-social concerns to hold ‘some’ SRI—but not necessarily to devote a larger share of their wealth to the cause) this is not necessarily the only explanation (Andreoni 1989, 1990). This pattern could also arise from noisy measures—which are self-reported and non-incentivized. Future work might try to examine the relationship between incentivized measures of social preferences and archival data on individual investment behavior among broad samples of individual investors— for example, building on the empirical strategy of Riedl and Smeets (2014).

Additionally I note that the overall pattern I observe in chapters 2 and 3, including the positive association of Psychopathy with SRI investing reported in chapter 3, is readily reconcilable with patterns commonly associated with prosocial behaviour (Bénabou and Tirole 2006). This suggests that engaging in SRI is indeed seen as a prosocial act at least by some investors. Together, these findings have implications for the modeling of investor decision-making.

I suggested that the positive association of Psychopathy with engagement in SRI is related to an image motivation on behalf of investors. Future research could clarify this association and ascertain - perhaps through experimental treatment, manipulating the visibility of SRI engagement - whether my interpretation is viable.

With the findings reported in chapters 2 and 3 I contribute to a couple of literature streams. First, as mentioned in the conclusions of chapters 2 and 3 I contribute to the SRI literature by providing further evidence that investors' prosocial tendencies - captured by social preferences (chapter 2) and personality traits (chapter 3) - are associated with engagement in SRI.

Secondly, I link the literature streams of SRI and the burgeoning literature at the intersection of personality psychology and economics, by demonstrating how they can complement one another. SRI investing offers personality psychologists a way to study prosocial behaviour outside the laboratory in an area where stakes are high (i.e. investors could potentially forgo returns by divesting away from sin companies). This could be interesting to personality researchers who want to investigate prosocial behaviour outwith the common methods, i.e. economic games in a laboratory setting (Ben-Ner et al. 2004b; Ben-Ner et al. 2004a; Baumert et al. 2014; Koole et al. 2001; Volk et al. 2011; Becker et al. 2012; Zettler et al. 2013; Thielmann and Hilbig 2014, 2015; Hilbig et al. 2015b; Hilbig et al. 2015a). Likewise, I introduce instruments from personality psychology to the SRI literature and demonstrate that they can be successfully used to help explain investors' decisions to engage in SRI. This could be interesting to SRI researchers who want to measure investor characteristics with measures other than revealed preference measures commonly used to ascertain investors' prosocial tendencies (Riedl and Smeets 2014; Heimann 2013). As I have noted in chapter 3, in contrast to revealed preference measures personality trait measures are specifically designed to be administered via self-report surveys and therefore readily lend themselves to investigate large samples of relevant populations such as investors (Borghans et al. 2008).

Thirdly, I contribute to economics literature by providing empirical evidence of how investors' idiosyncrasies can have an impact on economic outcomes. As I mentioned in the introduction to this thesis (chapter 1) economists and psychologists have developed alternative models to the standard investment theory models, such as the Capital Asset Pricing Model (e.g. Sharpe 1964). For example, Akerlof and Kranton (2000) develop a general model of agents' behaviour where an agent's utility function incorporates identity - a person's sense of self. With this general model of identity management, the authors are able to explain various economic outcomes that are not easily explained by standard economic models of behaviour, such as gender discrimination in the workplace, the economics of poverty and social exclusion, and the household division of labour (Akerlof and Kranton 2000). Similarly, Bénabou and

Tirole (2011) develop a model that comprises the identity of agents. With their general model of identity management the authors specifically explain 'moral' (i.e. prosocial) behaviour (Bénabou and Tirole 2011). The authors note "because people have better, more objective access to the record of their conduct than to the exact mix of motivations driving them, they are led to judge themselves by what they do" (Bénabou and Tirole 2011, p.806). In other words, if investors think of themselves as being a "good" person, they are more likely to act morally if given the chance. By acting in accord with their 'sense of self' (i.e. identity) people thereby reduce cognitive dissonance (i.e. acting against their own beliefs) (Bénabou and Tirole 2011). The findings I presented in chapters 2 and 3 can be viewed as 'inputs' for these models of identity management. Both, social preferences and personality traits are part of a person's identity. Social preferences are a measure of the extent to which a person would forgo a financial return in order to make an anonymous other better off and personality traits are defined as the "relatively enduring patterns of thoughts, feelings, and behaviours that reflect the tendency to respond in certain ways under certain circumstances" (Roberts 2009, p.7). Given that I find associations of both social preferences and personality traits with engagement in SRI, my findings, thus, provide tentative empirical evidence for the validity of these alternative models of agents' behaviour. With the findings reported in chapters 2 and 3 I demonstrated a viable empirical strategy to ascertain aspects of peoples' identity, and demonstrate that these have an impact on economic outcomes in the form of investors' engagement in SRI. Future research could use social preference and/or personality trait measures to test hypotheses derived from behavioural models such as the ones developed by Akerlof and Kranton (2000) and Bénabou and Tirole (2011).

Turning to the findings I presented regarding the association of personality traits with financial risk taking. In the analysis of the Big Five and the HEXACO measures I could not confirm a previously reported association of Openness with financial risk taking (Brown and Taylor 2014). Furthermore, contrary to Bucciol and Zarri (2017), I do not find a negative association of Agreeableness with financial risk taking. There are three possible explanations for these findings or, rather, null-results. First, the associations of these two traits are not strong enough to persist in models that include relevant controls. Second, the associations, uncovered in representative samples, do not emerge in a targeted sample of individual investors, such as the one I draw upon here. Third, Openness and Agreeableness could simply not be relevant traits with regards to financial risk taking. More research is needed to further inform the question