Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 8

The Effect of Religion on Financial and Investing Decisions

Walid Mansour

Research Affiliate, Islamic Economics Institute, King Abdulaziz University, Saudi Arabia

Mouna Jlassi

PhD Student, Ecole Supérieure de Commerce de Tunis, University of La Manouba in Tunisia

INTRODUCTION

This chapter discusses the relationship between religion and economic factors. It examines the extent to which religion can either influence or be influenced by economic variables, which in turn could affect financing and investment decisions. Religion has always been highly crucial in people's daily lives. The interest of economists in religion stems from the study of the variables driving production. Besides culture, social relationships, and institutional factors, religion is also an important determinant of individual and institutional financial behaviors and investing choices. Although Innoccone (1998) claims that Adam Smith was the first to stress the economic significance of religion, others regard Weber (1905) as the first author to establish a clear link between religion and economics.

To better understand the political economy, economists consider religion as an important variable. McCleary and Barro (2006, p. 760) claim that “successful explanations of economic performance must go beyond narrow measures of economic variables to encompass political social forces.” The economic literature contains a rich body of studies that examines the link between religion and economic variables (Guiso, ...