Altruism & Strategic Behaviour

Question 1

What is the assumption that economic agents behave?

Answer 1

• A way that maximises their own utility or profit

Question 2

What is Altruism?

Answer 2

• The act of being selfless and doing something to benefit others, without expecting anything in return

Question 3

What is the shape of the indifference curve if person 1 didn’t care about person 2

Answer 3

• The curve would be a flat line

Question 4

What is the shape of the indifference curve if person 1 hated person 2

Answer 4

• It would be the inverse of the Indifference Curve

Question 5

Explain Altruism Using Graphical References

Answer 5

• At point (M,N) B0>I0, she is not maximising her Utility
• Hence, they operate on I1

Question 6

What is Game Theory?

Answer 6

• A study of how individuals’ actions affect other players’ payoffs
• Depending on what the other person chooses, you will make a decision

Question 7

What is the Nash Equilibrium?

Answer 7

• The point where there is no Profitable deviation.

Question 8

How to calculate the expected payoff?

Answer 8

• If person 1 chooses option X, you calculate the options of Person 2 for X and Y
• If person 1 chooses option Y, you calculate the options of Person 2 for X and Y
• Then set them equal to each other and find the difference on the graph