Social context and the utility of wealth: Addressing the Markowitz challenge

Paradoxically, there is a demand for both risk and insurance. Markowitz (Markowitz, H., 1952. The utility of wealth. Journal of Political Economy 60, 151–158) laid the foundation for an explanation to this paradox. Markowitz challenged future researchers to build upon his foundation an operational specification of the taste for wealth. This paper addresses the Markowitz challenge by building social context variables into his model of individual utility. Verifiable implications about gambling, insuring, and peer selection are derived from the augmented Markowitz utility function.