Social Preferences and Portfolio Choice

We empirically investigate the effect of social preferences on portfolio choice. We use administrative investor data and link them to behavior in a controlled experiment and to survey responses. We show that social preferences rather than (biased) risk-return expectations are predictive for investment in socially responsible mutual funds without tax benefits. Our results indicate that social preferences are not driven out in the market place but systematically affect portfolio choice. Given the recently observed growth in socially responsible investments this may have long-run effects on stock prices. We also find that tax incentives may crowd out social preference based investments.