Publications

Journal Article

The emerging practice of “impact investing” optimizes both financial and social outcomes, and thus promises to support hybrid organizations that simultaneously pursue financial and social goals. The authors argue, however, that impact investing decisions may be prone to behavioral factors that limit their outcome efficiency.

In a portfolio allocation task designed to reflect the essential features of an impact investing decision, the authors find across a range of scenarios that individuals systematically fail to choose investment portfolios that achieve financial and social outcomes efficiently and thereby waste opportunities for value creation.

The authors further show in online and in-person experiments that outcome inefficiency is related to “categorical cognition”: suppression of categorical labels on investment options increases efficiency.