Investment and Concern for Relative Position
AbstractEconomists typically analyze individuals' market behavior in isolation from their nonmarket decisions. While this research strategy has generally been successful, it can lead to systematic errors when agents' nonmarket behavior affects their market choices. In this paper we analyze how individuals' investment behavior changes as a result of nonmarket behavior. Specifically, we analyze a model in which individuals must decide how to allocate their initial endowment between two random investments, where the returns are perfectly correlated across individuals for the first investment but independent across individuals for the second. We consider an environment in which men and women match, with wealthier individuals more successful in matching. We show how individuals' concern about relative wealth can affect their investment decisions, and we provide conditions under which individuals bias their investments either toward or away from the investment with correlated returns. A modification of the model is used to explain why agents investments might exhibit a home country bias.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Penn Economics Department in its series Penn CARESS Working Papers with number adb2940730338ff113d930aa2e42ccdf.
Date of creation:
Date of revision:
Contact details of provider:
Web page: http://www.dklevine.com/
Other versions of this item:
- Harold L. Cole & George J. Mailath & Andrew Postlewaite, 2000. "Investment and Concern for Relative Position," CARESS Working Papres invest, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Investment and Concern for Relative Position," CARESS Working Papres 00-06, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Laura Veldkamp & Stijn Van Nieuwerburgh, 2004.
"Information Immobility and the Home Bias Puzzle,"
04-32, New York University, Leonard N. Stern School of Business, Department of Economics.
- Stijn Van Nieuwerburgh & Laura Veldkamp, 2007. "Information Immobility and the Home Bias Puzzle," NBER Working Papers 13366, National Bureau of Economic Research, Inc.
- Laura Veldkamp & Stijn Van Nieuwerburgh, 2005. "Information Immobility and the Home Bias Puzzle," 2005 Meeting Papers 78, Society for Economic Dynamics.
- Michael Ostrovsky & Michael Schwarz, 2008.
"Information Disclosure and Unraveling in Matching Markets,"
NBER Working Papers
13766, National Bureau of Economic Research, Inc.
- Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
- Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers 1965, Stanford University, Graduate School of Business.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).
If references are entirely missing, you can add them using this form.