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Envy and Altruism: Contrasting Bivariate and Univariate Prospect Preferences

The Scandinavian Journal of Economics, Forthcoming

42 Pages Posted: 19 Sep 2012 Last revised: 23 Nov 2015

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration

Haim Levy

Hebrew University of Jerusalem - Jerusalem School of Business Administration; Fordham University

Multiple version iconThere are 2 versions of this paper

Date Written: 2016

Abstract

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.

Keywords: bivariate preferences, envy, altruism, expected utility burning, contingent money burning, stochastic dominance, decision-making, efficiency analysis

JEL Classification: D64, D81, G11

Suggested Citation

Kaplanski, Guy and Levy, Haim, Envy and Altruism: Contrasting Bivariate and Univariate Prospect Preferences (2016). The Scandinavian Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2148874 or http://dx.doi.org/10.2139/ssrn.2148874

Guy Kaplanski (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Haim Levy

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

HOME PAGE: http://pluto.huji.ac.il/~mshlevy/

Fordham University ( email )

140 West 62nd Street
New York, NY 10023
United States

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