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
