Categorical Cognition and Outcome Efficiency in Impact Investing Decisions

This study investigates how categorical cognition impacts outcome efficiency in impact investing decisions. It argues that individuals often struggle to identify portfolios that simultaneously optimize financial and social outcomes, leading to wasted value creation opportunities. Experiments show that suppressing categorical labels on investment options can significantly increase outcome efficiency, suggesting that the human tendency to categorize investments based on traditional labels (e.g., “charity” vs. “for-profit”) can hinder effective decision-making in hybrid contexts.