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New research: Fears about climate change determine behaviors

How do Swedish households relate to climate change and to sustainable investments? This is examined in the research report "Knowledge, Fears and Beliefs: Understanding Household Demand for Green Investments" written by Anders Anderson, Swedish House of Finance and David Robinson, Duke University.

The research report is based on a spring 2018 questionnaire survey of 20,000 randomly selected Swedish households aged 18 to 65. More than 4,000 of these responded. They were, among other things, asked about their financial knowledge and their attitudes towards sustainable savings..

"We found that most households overestimate their financial and environmental knowledge. The increased interest in engaging in environmental issues and the willingness to pay higher fees for green financial products can be explained by an overconfidence in their own environmental knowledge and fears rather than facts. In a follow-up of the project we also found that fears explain the tendency to invest in ESG funds in the premium pension," says Anders Anderson.

Perceptions based on own experiences

If you have experienced extreme weather, temperature records or heat warnings, it is more likely that you are a “green investor”. Thus, your own experiences largely drive households’ attitudes and investment decisions, according to Anders Anderson.
"There is previous research that show the same mechanism. For example, a US study* shows that generations that have experienced deep recessions in the world economy are less likely to invest in stocks compared to generations that have grown up during periods of strong growth. It is an example of what psychologists call availability or recency bias," says Anders Anderson. 

Risk of misjudgements and mistakes
Anders Anderson believes that there are dangers in not basing your decisions on facts.
"How is it possible for an individual to know whether a financial product is good or bad based on his or her experiences, rather than on actual knowledge? Even if you do the “right” thing, it may be for the wrong reason and the risk of misjudgements and mistakes increases," says Anders Anderson.

Difficult for the consumer to make decisions 
Since it is not only knowledge that explains the environmental commitment, it is difficult for the consumer to make informed decisions. 
"If we discover in our research that investments in green funds are emotionally driven, we must consider how we can create financial information that provides guidance in how to think so that it is not only an emotional dimension that is communicated to consumers. After all, it is important to create secure pension solutions that do not cost consumers too much," says Anders Anderson.

Green planet preferred over financial welfare 

A surprising result according to Anders Anderson was that so many Swedes are “green”.
"As many as 65 percent of Swedes believe that a green planet is more important than financial welfare. That view is mainly expressed by younger, well-educated women in big cities," says Anders Anderson.

Polar bears revealed ignorance
One of the questions that Anders Anderson and his colleague David Robinson asked in the survey was why polar bears do not eat penguins. 
"Nearly half did not answer correctly. A quarter did not know, eleven percent indicated that polar bears have been driven from their natural habitat, and two percent stated that polar bears are vegetarians. If you do not know that polar bears and penguins live on different continents, it is probably difficult to assess how some of the most vulnerable animal species are affected by global warming," says Anders Anderson.

Focus on consumers in continued research

Anders Anderson’s orientation is consumer market research on behavioral finance.
"We often evaluate returns, but what do we really know about consumers? What is their decision-processes and how do they reason? I will do more research on this because we have a unique opportunity to match survey responses with register data in Sweden," says Anders Anderson.

Interview by Emilie Eliasson Hovmöller

*Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? Ulrike Malmendier Berkeley och NBER, Stefan Nagel, The Quarterly Journal of Economics, Volume 126, Issue 1, February 2011, Pages 373–416.

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