The Lessons of Behavioral Finance: Understanding & Overcoming Barriers to Impact Investing

This is part two of a six part series exploring the sessions in the Tactical Philanthropy track at the Social Capital Markets conference.

Session Description: The Lessons of Behavioral Finance: Understanding & Overcoming Barriers to Impact Investing
Impact Investing challenges the conventional separation of asset growth from charitable distribution and raises interesting questions about strategic philanthropy, fiduciary responsibility and investment products. While the concept has been well received in theory, most funders and donors have not significantly engaged in this approach. This dynamic panel will explore behavioral, structural, and theoretical obstacles to Impact Investing – and help participants understand how to overcome these obstacles.

  • Rae Richman, Rockefeller Philanthropy Advisors
  • Randy Allison Hustvedt, Federal Street Advisors
  • Hope Neighbor, Hope Consulting

I believe that behavioral finance, the emergent field that drops the classical economic assumption that market participants are always rationale and always act in their best interest, can offer a lot of insight to philanthropy. In this SoCap session, we’re going to look at what the lessons of behavioral finance can teach us about impact investing.

Impact investing is one of those concepts that gets almost universal approval. While people have varying degrees of enthusiasm for how much promise it holds, few people are against impact investing. Yet, uptake of the approach is very, very low. One reason for this may be that the people in charge of starting an impact investing program are humans who avoid doing new things and are not in fact the utility maximizing, rational actors that traditional economic theory assumes.

In this session, we will have Rae Richman of Rockefeller Philanthropy Advisors, whose organization recently published Solutions for Impact Investors: From Strategy to Implementation, which devoted a chapter to the behavioral reasons that people are slow to implement impact investing. Hope Neighbor, whose recent Money for Good report examined the “market” for impact investing and took steps to focus on behavioral issues by looking at actual actions rather than just stated preferences. And Randy Hustvedt of Federal Street Advisors who will lead the session participants through an exercise demonstrating our shared cognitive biases (which are at the root of why people make non-rational decisions).

Economic theory assumes that humans are profit maximizers. But the act of philanthropy shows a significant human impulse to take actions which are driven by non-profit motives. Understanding what actually drives decisions making in impact investing is key to the expansion of this practice.

Click here to register for the conference. Nonprofit employees are eligible for a 40% discount and all readers of Tactical Philanthropy are eligible for a 30% discount (email me for the code, it expires on 8/19).