Selfishness and Altruism Flashcards
what does homoeconomicus believe and proof
all people are selfish - utility maximisers
- the fact that experiments show that experimental markets quickly converge to competitive equilibrium - confirmation that of self interest hypothesis
- in economic theory firms that are not profit maximiser get wiped out of markets
- adam smith = invisible hand - pursuit of self ineterst leads to socially optimal outcomes
Vernon Smith - proves self interest hypothesis
- subjects randomly assignes to buyers or sellers to fictitious goods
- MB = MC = P = pareto efficient
- people give bids and asking prices = double auction
- prices converge to e
summary
- when people are self interested = socially optimal outcomes
- social preferences dont matter
but this is because contracts are complete , no extranalities - but in real life outside of markets real world contracts are incomplete
- need to measure social preferences by controlling self interest - reputation and money incentives
what is altruism
preference of being kind to others - without expected return
- unconditional willingness
what is reciprocity
positive reciprocity = respond to kindness with kindess
negative = punish unkindness
Kahneman (1994)
- are people motivated by altruism
- 2 people randomly matched - 1 allocated as dictator
- dictator given £10 and gets to choose how to divide it between other person
- responder has to accept
- prediction = dictator keeps all money = selfish
outcome results of dictator game
dictator that gives money to player 2 = altruistic = being kind even though it costs them
- one shot game with stranger = no strategy involved
Engel 2011
outcome of meta analysis
- old people more giving
- lower social distance = higher mean giving rate
- more primitive give more
how can we measure social preferences
using experimental games that control for material/strategic and reputational
- dictator game = can choose how much to give to stranger - one shot - no strategy
- basic form of altruism = no recipricol response
- outcome of average giving rate varies systematically across social situations
average numbers of giving
2/3 give
1/3 = homoeconomicus
what is reciprocity?
kind to those kind to us - hurt those that hurt us
- even if it is costly to us and yields no material benefits
- positive = conditional cooperation - gifts
- negative = punishing
what are games to study reciprocity
positive
- trust game
gift exchange game
public goods game
prisoners dilemma = max optimal when coop - unilateral deviation
negative
- ultimatum game
public goods game with punishment
Berg 1995
Trust game
- what is standard econ prediction
- many economic transactions contain element of trust
- 2 players - given roles trustor - trustee
- player 1 endowed with amount 10 decides how much to transfer
- what he transfers is tripled then given to player 2
- player 2 decides how much to give back
backward induction = player 2 will keep all money
- so player 1 will not send any
welfare is overall maximised when p1 sends 10, p2 sends 15 back
meta analysis of trust games
- 162 replications of trust game
- mean amount for player 1 to send back = 50% - dont want to be exploited
- mean return by player 2 = 37%
- younger people give back less
- with full trust - player 1 sends full amount = player 2 will send higher amounts back
Fehr (1997)
the Gift exchange game
- captures the labour relationship - firm decides wage and worker decides how much effort want to put in
- standard economics = workers do minimum effort = self interest hypothesis
2 players = principal and agent - principal offers wage and aggent chooses effort level
- monetary payoffs = 10*e - w , w - c(e)
- agent will only put in effort if benefit from e > cost
-
results from gift exchange game
lab experiment = one shot gift exchange experiment =
- wages and effort are positively correlated - the higher wage - the more effort
- field experiments confirm
- trust in workplace = recipricated
the public goods game what is it
- relates to many situations
- the collective interest of a group of people is at odds with the individual interest of members
- social dilemma - do i better the group or myself
public goods game
- members get given endowment of e tokens
- each member chooses how much to contribute to the public good game and how much to keep for themselves
- all the contributions get summed and you get given back a proportion
- the more people that cooperate - the higher group contributions and potential for higher payoffs - higher payoffs rely on many people contributing
general results from public good game
- why does it decay?
- in the first round considerable cooperation rates 40-60% but decay over time
- most contribute fully/half - 10% freeriders
- how much they contribute is not independent to others decisions
- more people willing to cooperate if others do - positive reciprocity
- after each round they get told what the average group contribution is
- high correlation between what people believe others will pay in and what they contribute
Fehr 2001
conditional cooperation table
- subjects indicate how many tokens they want to contribute for each average contribution of the other group members - table of decisions
- tells us how much they will give conditional on others answers
results from conditional cooperation table
- distinguish free riders = 30%
- conditional cooperators = 50% - undercut -
- decays over time - people willingness withdraws
evidence of positive reciprocity
return on trust and gift excahnge game
- conditional cooperation
Guth
the ultimatum game
- player 1 makes a take it or leave it ultimatum to player 2 of how to split 10
- player 2 can accept , reject - if reject neither gets money
- standard economics = player 2 will always accept
results from ultimatum game
modal = people split the money
- belowe half - people begin declining the money
difference in results between dictator and ultimatum
- higher offers in strategic game compared to ultimatum
- strategic fairness - dont want to be left with no money
- for dictator - comparing incentivised with without pay = more people offer more money when not incentivised
- consistent results when UG is not incentivised
- people are aware of negative reciprocity
Fehr 2000
Cooperation and punishment
- 10 rounds without - 10 rounds with punishment
- punishment = 1 point spent on punishment reduces group member payoff by 3 points
- 2 groups = stranger group changed teamates every round = partners group stayed fixed
- partners mean contribution is always higher = more level of trust
- those that deviate from group average contribution get punished
what is Fehr and Schmidt theory of inequality aversion?
people dont like inequality
- advantageous inequality = receiving a gift from my mum makes me want to give back to my mum to feel happier
- disadvantageous inequlity = receiving unfair offer from my dad makes my utility decrease
Individuals can be averse to inequity both when they receive more (i.e., advantageous inequity) and when they receive less (i.e., disadvantageous inequity) than others
extra
people dislike inequality and care for equity
