Ethicality is one of the most important factors when deciding whether an investment is appropriate. However, Sometimes it can be difficult for investors to determine what constitutes ethical behavior and what does not, especially when making financial decisions. After all, most people want their investments to be profitable, but they also want them to reflect their values and beliefs.
This conundrum is known as bounded ethicality — an ethical dilemma where an investor feels like they have no choice but to make an unethical decision because doing otherwise would result in losing money or compromising their financial goals.
Bounded Ethicality and Investment
Ethicality can be defined as “the quality of being in accord with standards of right or good conduct.” An investor’s ethicality will depend on their values and beliefs.
For example, if investors believe it is morally wrong for companies to pollute the environment, they will probably avoid investing in such companies. However, if an investor believes that pollution is not something we should worry about, they may still invest in companies that pollute the environment.
Overcoming Bounded Ethicality When Investing
- Think Objectively
Whenever you are about to make any ethical decision, try to avoid subjective thinking. Emotions often drive subjective thinking, leading to decisions that do not align with your values or beliefs. On the other hand, objective thinking is more of a matter of logic and reason, which helps you make better decisions that are more consistent with your values and beliefs.
The best way to overcome bounded ethicality when investing is through objective thinking. This means making decisions based on facts rather than feelings or emotions. For example, if you are considering an investment opportunity that may harm the environment, think about all the facts about this opportunity objectively before making any final decision. Is it worth destroying the environment to make money?
- Spot Biases
If you want to avoid bounded ethicality, knowing how your biases affect your decisions is essential. The most common spot bias is confirmation bias, which causes investors to look for information that confirms their existing beliefs rather than looking objectively at all available data.
These biases can be very dangerous when it comes to investing because it makes it very difficult for them to change their minds once they have made up their minds. It causes investors to take unnecessary risks and make investments that don’t actually make sense because of bias. Before making ethical decisions, one should try to identify these biases.
- Use data
One thing that helps is ensuring you have access to all the facts and information about a situation before making any decisions about how to proceed. If there are things you don’t know yet, ask questions until everything is clear and understandable.
In the end, Bounded Ethicality is a problem we all have to deal with. It’s never easy to think about how your actions might affect other people or businesses. It isn’t easy most of the time. The trick is to identify the points where you feel Bounded Ethicality coming in and then do your best to mitigate any potential damage that could arise from those choices. Simple as that!