Fuzzy Multi-criteria Support for Sustainable and Social Responsible Investments: The Case of Investors with Loss Aversion

Abstract

The aim of this paper is to construct a support decision-making system for portfolio selection combining financial and sustainable objectives. The model we propose allows us to obtain a socially responsible portfolio which tracks the portfolio that an investor could have chosen if she did not take into account social, ethical and ecological (SEE) considerations in her investment decisions. For this purpose, we propose a fuzzy multi-criteria model that runs on two levels of decision-making: in the first stage, the preferred portfolio considering only financial objectives is obtained. In the second stage, we will use the preferred portfolio as a reference point with respect the financial behavior and then a socially responsible portfolio is obtained. In this paper linguistic labels have been used to model the parameters of the value function proposed by Kahneman and Tversky (Econometrica XVL(II):263–291, [10]). These linguistic labels determine in a “soft” way the loss and risk aversion. The developed methodology has been applied to eight Spanish companies, which have been selected for their relevance in the Spanish stock market.