Envy and Altruism: 'Contingent Money Burning'
Bar-Ilan University - Graduate School of Business Administration
Hebrew University of Jerusalem - Jerusalem School of Business Administration; Fordham University
The effect of envy and altruism on investment choices is analyzed by employing utility-free bivariate First-degree Stochastic Dominance (FSD) rule. Using the classic expected utility as the benchmark we find that envy or altruism may induce univariate FSD violation, hence a violation of the classic expected utility monotonicity axiom. Thus, the negative result is that an FSD inferior prospect may be selected inducing expected utility loss. Surprisingly, not only envy but also altruism may induce “contingent money burning” causing a reduction in the classic univariate expected utility of both the investor and her peer group. The positive result is that the bivariate SD efficient set always contains the univaraite SD efficient set. Hence, for some investors a careful selection from the bivariate efficient set may avoid the economic loss.
Number of Pages in PDF File: 41
Keywords: bivariate preferences, envy, altruism, expected utility burning, contingent money burning, stochastic dominance, decision-making, efficiency analysis
JEL Classification: A13, C02, C91, D64, D81, G11working papers series
Date posted: September 19, 2012 ; Last revised: January 22, 2014
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