Altruism and fairness

Question 1

What is the definition of altruism?

Answer 1

Acting to promote another person’s wellbeing, even at a personal cost (e.g., financial loss, time sacrifice, or personal risk).

Question 2

How does altruism challenge traditional economic theory?

Answer 2

Traditional economic theory assumes individuals act purely in self-interest, but altruism introduces the idea that people may act to benefit others even at personal cost.

Question 3

How is altruism integrated into utility theory?

Answer 3

Altruistic actions can be explained as individuals deriving utility (happiness or satisfaction) from helping others.

Question 4

What observational evidence supports the existence of altruism?

Answer 4

• Human children often help peers without external incentives.
• Animals display altruistic behaviors (e.g., grooming, sharing food).

Question 5

What is the definition of fairness?

Answer 5

A normative concept relating to impartiality, justice, and reasonableness.

Question 6

What are common interpretations of fairness?

Answer 6

1. Treating everyone equally.
2. Sharing resources or opportunities fairly.
3. Acting in ways that are justifiable and respectful.

Question 7

Why is the perception of fairness subjective?

Answer 7

It may differ based on cultural, social, or personal values.

Question 8

What does behavioural economics suggest about cooperation?

Answer 8

Many individuals have an innate tendency to cooperate rather than compete.

Question 9

How does behavioural economics’ view of cooperation contrast with classical economics?

Answer 9

Traditional models, such as the “rational actor model,” emphasized competition and self-interest.

Question 10

How is altruism incorporated into utility maximization?

Answer 10

A person donating to charity may gain satisfaction or happiness from knowing they helped others.

Question 11

How is fairness incorporated into decision-making?

Answer 11

1. Reciprocity: Individuals are more likely to act fairly if they expect fairness in return.
2. Inequity Aversion: People prefer outcomes where resources are distributed more equally, even at a personal cost.

Question 12

What is the Ultimatum Game, and what does it demonstrate?

Answer 12

• One player proposes a division of money; the other accepts or rejects.
• Offers perceived as unfair are often rejected, even at a cost to the rejector, highlighting fairness concerns.

Question 13

What is the Dictator Game, and what does it demonstrate?

Answer 13

• One player decides how to divide a sum of money without input from the other.
• Many participants share, reflecting altruistic or fairness-driven motives.

Question 14

What is the Public Goods Game, and what does it demonstrate?

Answer 14

• Participants contribute to a common pool that benefits all.
• Contributions often exceed the purely self-interested equilibrium, indicating cooperative tendencies.

Question 15

What are social preferences?

Answer 15

Preferences that incorporate altruism, fairness, and reciprocity into utility functions.

Question 16

What are examples of models incorporating social preferences?

Answer 16

Fehr and Schmidt’s model of inequity aversion.
Rabin’s fairness equilibrium.

Question 17

What is the difference between normative and descriptive economics in the context of fairness?

Answer 17

• Normative: Involves value judgments and subjective beliefs about fairness.
• Descriptive: Observes and explains actual behavior regarding fairness and altruism.

Question 18

What is Dual-System Theory?

Answer 18

• System 1 (intuitive): Drives immediate cooperation or altruistic impulses.
• System 2 (deliberative): Allows for calculated, self-interested decisions.

Question 19

How does bounded rationality relate to fairness and altruism?

Answer 19

Individuals may prioritize fairness or altruism over pure utility maximization due to cognitive and emotional constraints.

Question 20

What are the applications of altruism and fairness in policy design?

Answer 20

1. Nudges promoting charitable giving or cooperative behavior.
2. Incentive structures that align individual actions with societal benefits.

Question 21

How do businesses apply altruism and fairness in their strategies?

Answer 21

1. Fair pricing strategies to foster customer loyalty.
2. Corporate social responsibility to appeal to altruistic and fairness-oriented consumers.

Question 22

How does environmental economics use concepts of altruism and fairness?

Answer 22

By encouraging cooperative actions like recycling or conservation through appeals to fairness and shared responsibility.

Question 23

What is the significance of altruism and fairness in economics?

Answer 23

They expand traditional economic models by incorporating social preferences, offering insights into real-world decision-making and shaping policy, market strategies, and economic models.