Shefrin, Hersh. "Impact Investing and Behavioral Finance." Presentation to the Value of Values conference, Santa Clara University, May 14, 2010.
Presentation slides here.

(Rough notes by Lloyd Kurtz - I apologize for any inaccuracies or errors of emphasis. - lk)

Shefrin, a noted thinker in behavioral finance, discussed Impact Investing, an emerging investment movement that has roots in the teaching of Rudolph Steiner.

  • “Unlike economists, behaviorists recognize that people can be altruistic, and less than fully rational [from an economic perspective].” Meir Statman calls them – “normal” investors, as opposed to the economists’ “rational” investors.
  • He discussed African entrepreneur Mo Ibrahim, who had to sell his company to get financing for growth. One reason for the trouble raising capital: “because we are African.” Using the same assets as collateral the Kuwaiti buyer was able to quickly raise $2.5 bn. Although he had pushback from the audience, Hersh stuck with his view that this was a sign of imperfect capital markets.
  • Hersh borrowed language from the book Built to Last: “the tyranny of or” and “the genius of and”. “Or” implies dualism – you can’t do both returns and social impact. “And” implies you can “blend the two in a sensible way.”

But he warned that, just like anyone else, “impact investors can make mistakes,” including both the usual documented behavioral mistakes as well as misjudging social impact. But he said, it’s worth doing – “you’re being as explicit as you can about what matters. What is your utility function?” Once that’s been worked out, the goal is to look for sensible rules of thumb to help investors achieve their goals.