CSR dynamics under peer pressure and green confusion: A multi-agent simulation approach

Abstract

In addressing the limitations of solving the Prisoner's Dilemma problem describing the firm-end consumer Corporate Social Responsibility (CSR) dynamics from a purely rational perspective, we propose to introduce the variables of emotions and peer pressure to capture the irrational aspect of human decision making. We refer to the Theory of Planned Behavior to construct a decision making model that describes the game, then we use multi-agent simulation to run the model under various market conditions. Results show that socially responsible firms could achieve above-average profits when they are able to quickly recover their CSR investment and when they operate in a market where a large portion of consumers hold initial positive attitudes towards CSR. In addition, our results indicate that above-average profits can be achieved only in the absence of consumer green confusion. Managerial implications on trust and customer loyalty are discussed based on the above findings.