Cleansing your conscience: The effects of guilt on Socially Responsible Investment decisions

School of Psychology and Clinical Language Sciences, University of Reading January 2021 Short Abstract This paper explores the effects of incidental guilt on Socially Responsible Investment (SRI) decisions of retail investors. Moral emotions and guilt motivate prosocial behaviours. However, not much is known about the relationship between guilt and ethical investment. Do investors who feel guilty invest in ethical investments in order to clear their conscience? If so, are guilty investors willing to sacrifice their profits in order to restore their moral selves? Based on data from an online quasi-experiment among a sample of US retail investors, we find that individuals who experience incidental guilt choose to invest more ethically than those in a neutral state. We find that even after controlling for morality and individual attitudes towards social responsibility, incidental guilt is still a significant predictor for ethical decisionmaking. We show that when presented with a trade-off between social responsibility and favourable risk/return characteristics, guilty individuals tend to make more ethical choices than non-guilty ones. Our research sheds new light on the impact of moral emotions on prosocial behaviour in the context of financial decision-making. We provide new evidence for the substantial effect that guilt can have on sustainable investing.