Understanding social interactions and generous behaviors have long been of considerable interest in the social science community. While the contagion of generosity is documented in the real world, less is known about such phenomenon in virtual worlds and whether it has an actionable impact on user behavior and retention. In this work, we analyze social dynamics in the virtual world of the popular massively multiplayer online role-playing game (MMORPG) Sky: Children of Light. We develop a framework to reveal the patterns of generosity in such social environments and provide empirical evidence of social contagion and contagious generosity. Players become more engaged in the game after playing with others and especially with friends. We also find that players who experience generosity first-hand or even observe other players conduct generous acts become more generous themselves in the future. Additionally, we show that both receiving and observing generosity lead to higher future engagement in the game. Since Sky resembles the real world from a social play aspect, the implications of our findings also go beyond this virtual world.