Description:
This study investigates the effect of investors’ pro-sustainable higher-order beliefs – their beliefs about other investors’ preferences toward sustainability – on their investment decisions, and whether this relationship is sensitive to sustainability performance. While prior research has mainly focused on investors’ pecuniary or non-pecuniary preferences, we introduce investors’ pro-sustainable higher-order beliefs as an additional component of their non-pecuniary utility. Using a coordination game, we explicitly elicit investors’ higher-order beliefs toward sustainability. Our results show that pro-sustainable higher-order beliefs have an additional effect on investment decisions beyond the effect of pro-sustainable preferences, highlighting the importance of higher-order beliefs for investment decisions in the sustainability context. Furthermore, the results suggest that investors with pro-sustainable preferences derive higher utility from holding assets with higher sustainability performance. In contrast, investors with pro-sustainable higher-order beliefs derive utility from correctly predicting others’ pro-sustainable preferences