Friendship and Investorss Economic Rationality: An International Investment Study

Abstract

Hypothetical stock market investment experiment in six countries reveals that subjects are better off losing money rather than gaining money as long as their so-called ”friends” lose more money. Only 8.2% of the subjects either ignore the peer group’s investment performance, as advocated by the classic univariate expected utility paradigm, or exhibit a consistently favorable response toward their friends, which is a necessary condition for the existence of altruism. The hostility of subjects toward their friends is greater in less wealthy countries. We provide some alternate explanations for these results.