pattern of investment, indicating that Islamic investing and socially responsible investing are driven (at least in part) by considerations other than fund performance. However, we fail to find evidence that investors view socially responsible funds as substitutes for Islamic funds, with religious investors choosing to invest higher amounts in Islamic funds even when the alternative fund is socially responsible.

Our results provide clear evidence for religiously motivated investing. To the best of our knowledge, ours is the first study that aims to assess the non-pecuniary motivations behind religious investments through a lab experiment. Our study contributes to literature on the role of non-financial information in investment decisions, investor loyalty and faith-based investing. Our findings hold important implications for a growing segment of the mutual fund industry, particularly investment patterns and communication strategies.

The rest of the paper is organized as follows: Section 2 outlines the design of the lab experiment; Section 3 presents the results; Section 4 discusses the findings; and Section 5 concludes the paper.

# **2 EXPERIMENTAL DESIGN**

Our experiment utilizes a between-subjects design, with a control group and three treatment groups. Our sample consists of university undergraduate students at a private university in Pakistan – the Lahore University of Management Sciences. Students at this university generally belong to the mid to upper income levels of Pakistani society. This sample is ideal for our purposes, as Pakistan has the second largest population of Muslims in the world (following Indonesia) and has a high proportion of Muslims (96.5% according to the 2017 census). Furthermore, the sample is well-educated and likely to be high earners in the future (due to strong employment prospects of the university’s graduates), and hence are likely to engage with the financial services sector, including as investors. Hence, conducting a study on Islamic investing is ideal with this sample. In addition to this, Pakistan is a middle-income country, and has a robust social services and non-governmental organizations sector, indicating that socially responsible investing may also be of interest to the population (in general), and to our sample (in particular). Pakistanis vary in their adherence to religious doctrine, which is useful for studying demand for Islamic financial instruments. College students from a private university are a useful (though nonrepresentative) sample, as they are likely to be investing in mutual funds in the future. All sessions for the experiment were conducted in April 2017. Sessions lasted between 45 minutes to 1 hour, and average earnings paid to subjects were approximately 850 PKR (8.5 USD). Sessions were conducted in on-campus computer labs at the Lahore University of Management Sciences. Subjects were randomized to treatment at their desks, and all instructions were read by the subjects themselves.

Our experimental design follows closely the work of Barreda-Tarrazona et al. (2011), however we depart from their setup in a few specific ways. Barreda-Tarrazona et al. (2011) provide subjects with a realistic document of a traditional mutual fund and an “ethical fund”. The overview that they provide includes detailed information related to the funds (e.g., past performance, investment style and assets composition). In contrast, our simplified setup just provides three pieces of information: average return, risk, and fund type (traditional, Islamic, or socially responsible). We follow this approach to highlight key differences between the funds in a simple and intuitive manner.