Altruism and fairness Flashcards
Aspects of behavioural economic theory -> Individual economic decision making -> Microeconomics
What is the definition of altruism?
Acting to promote another person’s wellbeing, even at a personal cost (e.g., financial loss, time sacrifice, or personal risk).
How does altruism challenge traditional economic theory?
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.
How is altruism integrated into utility theory?
Altruistic actions can be explained as individuals deriving utility (happiness or satisfaction) from helping others.
What observational evidence supports the existence of altruism?
- Human children often help peers without external incentives.
- Animals display altruistic behaviors (e.g., grooming, sharing food).
What is the definition of fairness?
A normative concept relating to impartiality, justice, and reasonableness.
What are common interpretations of fairness?
- Treating everyone equally.
- Sharing resources or opportunities fairly.
- Acting in ways that are justifiable and respectful.
Why is the perception of fairness subjective?
It may differ based on cultural, social, or personal values.
What does behavioural economics suggest about cooperation?
Many individuals have an innate tendency to cooperate rather than compete.
How does behavioural economics’ view of cooperation contrast with classical economics?
Traditional models, such as the “rational actor model,” emphasized competition and self-interest.
How is altruism incorporated into utility maximization?
A person donating to charity may gain satisfaction or happiness from knowing they helped others.
How is fairness incorporated into decision-making?
- Reciprocity: Individuals are more likely to act fairly if they expect fairness in return.
- Inequity Aversion: People prefer outcomes where resources are distributed more equally, even at a personal cost.
What is the Ultimatum Game, and what does it demonstrate?
- 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.
What is the Dictator Game, and what does it demonstrate?
- One player decides how to divide a sum of money without input from the other.
- Many participants share, reflecting altruistic or fairness-driven motives.
What is the Public Goods Game, and what does it demonstrate?
- Participants contribute to a common pool that benefits all.
- Contributions often exceed the purely self-interested equilibrium, indicating cooperative tendencies.
What are social preferences?
Preferences that incorporate altruism, fairness, and reciprocity into utility functions.
What are examples of models incorporating social preferences?
Fehr and Schmidt’s model of inequity aversion.
Rabin’s fairness equilibrium.
What is the difference between normative and descriptive economics in the context of fairness?
- Normative: Involves value judgments and subjective beliefs about fairness.
- Descriptive: Observes and explains actual behavior regarding fairness and altruism.
What is Dual-System Theory?
- System 1 (intuitive): Drives immediate cooperation or altruistic impulses.
- System 2 (deliberative): Allows for calculated, self-interested decisions.
How does bounded rationality relate to fairness and altruism?
Individuals may prioritize fairness or altruism over pure utility maximization due to cognitive and emotional constraints.
What are the applications of altruism and fairness in policy design?
- Nudges promoting charitable giving or cooperative behavior.
- Incentive structures that align individual actions with societal benefits.
How do businesses apply altruism and fairness in their strategies?
- Fair pricing strategies to foster customer loyalty.
- Corporate social responsibility to appeal to altruistic and fairness-oriented consumers.
How does environmental economics use concepts of altruism and fairness?
By encouraging cooperative actions like recycling or conservation through appeals to fairness and shared responsibility.
What is the significance of altruism and fairness in economics?
They expand traditional economic models by incorporating social preferences, offering insights into real-world decision-making and shaping policy, market strategies, and economic models.
