Return on Integrity: The Role of Cognitive Dissonance in Finance and Sustainability Trade-Offs

Abstract

In many cases, financial and sustainability performance do not point in the same direction, which can make investment decisions more difficult. Yet little is known about how investors handle this type of conflict in practice. This study examines how private investors respond when financial and sustainability information send mixed signals, and whether their decisions reflect or conflict with their stated value orientation. Drawing on research from behavioural finance and neuroeconomics, with a focus on cognitive dissonance theory, this lab experiment used a free-choice paradigm to investigate these decision processes. A total of 157 participants were randomly assigned to either a control task, where company messages were consistent, or a conflict task, where financial and sustainability performance pointed in opposite directions. Participants completed a rate-choose-rate sequence, and data were collected through eye tracking (fixations, dwell time, revisits), galvanic skin response (GSR peaks), and surveys measuring values and decision confidence. Group-level results were mixed. The expected spreading of alternatives - a common marker of dissonance - was only marginally higher in the conflict condition. Confidence and GSR did not differ significantly, and fixation counts were unexpectedly lower when information conflicted. However, closer qualitative inspection and subgroup analysis suggested that some participants experienced cognitive dissonance, with three distinct pathways identified. These individuals either shifted their value ratings to match their choice, selectively focused on information that supported their decision, or showed signs of unresolved conflict. The findings suggest that investor responses to conflicting performance information are highly heterogeneous, and that even in a simplified, bounded task environment, many participants engaged in satisficing and rationalisation. This underscores the importance of using mixed methods to better understand the cognitive and emotional processes underlying investment decisions.