English, Article, Journal or magazine article edition: Investment and Concern for Relative Position Harold L. Cole; George J. Mailath; Andrew Postlewaite

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Bookmark: http://trove.nla.gov.au/version/189823
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Investment and Concern for Relative Position
Author
  • Harold L. Cole
  • George J. Mailath
  • Andrew Postlewaite
Physical Description
  • preprint
Notes
  • Economists 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.
  • RePEc:wop:pennca:invest
  • RePEc:cla:penntw:adb2940730338ff113d930aa2e42ccdf
Language
  • English
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