Abstract
Capital derived from immoral sources is increasingly circulated in today’s financial markets. The moral associations of capital are important, although their impact on investment remains unknown. This research aims to explore the influence of principal source morality on investors’ risk preferences. Three studies were conducted in this regard. Study 1 finds that investors are more risk-seeking when their principal is earned immorally (through lying), whereas their risk preferences do not change when they invest money earned from neutral sources after engaging in immoral behavior. Study 2 reveals that guilt fully mediates the relationship between principal source morality and investors’ risk preferences. Studies 3a and 3b introduce a new immoral principal source and a new manipulation method to improve external validity. Guilt is shown to the decrease the subjective value of morally flawed principal, leading to higher risk preference. The findings show the influence of morality-related features of principal on people’s investment behavior and further support mental account theory. The results also predict the potential threats of “grey principal” to market stability.
Highlights
Conflicts between morality and interest are ubiquitous for governments, corporations, and individuals. Sometimes, such conflicts end with venality, creating “dirty money”
As estimated by the IMF in 2015, money laundering accounts for more than 5% of global GDP, and money laundering mainly occurs through investments
The stability of global and local markets would be threatened if individuals were less prudent and more riskseeking when investing dirty money
Summary
Conflicts between morality and interest are ubiquitous for governments, corporations, and individuals. Sometimes, such conflicts end with venality, creating “dirty money”. The stability of global and local markets would be threatened if individuals were less prudent and more riskseeking when investing dirty money. It remains unclear how the morality of principal obtaining means impacts investors’ risk preferences. To fill in this knowledge gap, this research attempts to combine perspectives from both risky decision making and moral psychology
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