lecture 4 - social interactions Flashcards
how can social interactions be modelled?
through game theory
how can desirable outcomes be reached?
when people interact through a combination of self interest, regard for wellbeing of others and appropriate institutions
although self interest can be socially beneficial why can it be harmful?
if there is no regard for other people then it can be harmful towards society such as producing waste products such as pollution (public bad)
what is game theory?
a way of undertsnaing how people interact based on the constraints that limits actions, motives and beliefs about what others do
a way of modelling how people interact
what are important motives explaining how people interact?
self interest, concern for others and preferences for fairness
what does concern for others and fairness allow?
us to internalise the effects of our actions on others and can contribute to good social outcomes
what is a social dilemma?
a situation in which actions that are taken independently by self interested individuals that results in a socially suboptimal outcome e.g traffic jam
how can social dilemmas be stopped?
by woking together rather than working in own interest
what is an example f a social dilemma?
climate change
e.g paris agreement, places such as US and China have not signed in order to pursuit own self interest in burning coal etc
what was garrett hardin’s example of a social dilemma?
the tragedy of the commons
how can self interest be beneficial?
if it is channeled mutually
e.g entrepeneurs who are acting in self interest for money can be socially optimal as they are advancing technology
in game theory what does the outcome rely on?
what others do
what are four terms incvolved in game theory?
1) players - who is in involved in the interaction
2) feasible strategies - which actions each player can take
3) information - what each player knows when choosing actions
4) payoffs - what the outcomes will be for each player for each combination of actions
what is the invisible hand?
phrase coined by adman smith, it is an unobservable market force that regulates the market economy, if you buy a coffee you are making the market better off
what is the best response in game theory?
strategy that will yield the highest payoff, given the strategy of another player
what is the dominant strategy?
a best response to all possible strategies of the other player
if both players have a dominant strategy what happens?
it can be predicted that both will use their dominant stretgay
what is dominant strategy equilibrium?
an outcome of a game in which everyones plays their dominant strategy, an equilibrium as both are happy so will have no incentives to change their strategy
what is prisoners dilemma?
a game with a dominant strategy equilibrium in which the dominant stagy yields lower individual and total payoffs compared to other stratgeies
socially optimal outcome is not reached, compared to if the best response was choice
why is prisoners dilemma often not an accurate display of features in real life?
in real life most social interaction are not just a one shot game
but a game of multiple decisions
what type of game does a social dilemma usually occur in?
a one shot game
in repeated games why are better outcomes usually reached?
social norms, reciprocity and peer punishment
what does behaving selfishly in one period do?
if you behave selfishly in one period it may have consequences in the next e.g you r dominant strategy now may not be the same for the next period
what does altruism mean?
selfless concern for the wellbeing of others
e.g choosing strategy that would result in less harm to other players and enviro
what is altruistic preferences?
when a person is willing to bear a cost in order to help another person
e.g willing to reduce their payoffs so that someone else payoff does not decrease
how is altruism linked to prisoners dilemma?
if someones acts atruistically or ha preferences then people both car about each other and socio dilemmas are easiest to resolve
what is the public good game?
models behaviour of groups of individuals achieving a common goal, has same properties as prisoners dilemma but describes public good or a resources which all may benefit regardless of contribution
what is the sequential game/ultimatum?
where players choose how to devise up economic rents and they have to negotiate
e.g split 5:5 or 8:2
motivated by altruism, social norms and fairness
what is a way of resolving conflict of interest that doesn’t always work out?
negotiating
why might negotiations work?
social norms might be different in relation to fairness and sharing
- different preferences
what are norms and preferences?
norms are ideas about social behaviour that are common to an entire group and preferences are about what you like etc
what are the three reasons in which someone might give some of the economic rent to someone else in an ultimatum game?
- altruism - look after others
- fairness
- resiprocity - paying back
what are the two rules in the ultimatum game?
proposer
responder
what is nash equilibrium
the outcome when each indidivudla best resends t the strategies chosen by everyone else
what can cause coordination problems?
multiple nash equilibrium
