Selfishness and Altruism

Question 1

what does homoeconomicus believe and proof

Answer 1

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

Question 2

Vernon Smith - proves self interest hypothesis

Answer 2

• 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

Question 3

summary

Answer 3

• 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

Question 4

what is altruism

Answer 4

preference of being kind to others - without expected return
- unconditional willingness

Question 5

what is reciprocity

Answer 5

positive reciprocity = respond to kindness with kindess
negative = punish unkindness

Question 6

Kahneman (1994)
- are people motivated by altruism

Answer 6

• 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

Question 7

outcome results of dictator game

Answer 7

dictator that gives money to player 2 = altruistic = being kind even though it costs them
- one shot game with stranger = no strategy involved

Question 8

Engel 2011
outcome of meta analysis

Answer 8

• old people more giving
• lower social distance = higher mean giving rate
• more primitive give more

Question 9

how can we measure social preferences

Answer 9

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

Question 10

average numbers of giving

Answer 10

2/3 give
1/3 = homoeconomicus

Question 11

what is reciprocity?

Answer 11

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

Question 12

what are games to study reciprocity

Answer 12

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

Question 13

Berg 1995
Trust game

• what is standard econ prediction

Answer 13

• 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

Question 14

meta analysis of trust games

Answer 14

• 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

Question 15

Fehr (1997)

the Gift exchange game

Answer 15

• 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
-

Question 16

results from gift exchange game

Answer 16

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

Question 17

the public goods game what is it

Answer 17

• 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

Question 18

public goods game

Answer 18

• 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

Question 19

general results from public good game
- why does it decay?

Answer 19

• 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

Question 20

Fehr 2001

conditional cooperation table

Answer 20

• 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

Question 21

results from conditional cooperation table

Answer 21

• distinguish free riders = 30%
• conditional cooperators = 50% - undercut -
• decays over time - people willingness withdraws

Question 22

evidence of positive reciprocity

Answer 22

return on trust and gift excahnge game
- conditional cooperation

Question 23

Guth

the ultimatum game

Answer 23

• 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

Question 24

results from ultimatum game

Answer 24

modal = people split the money
- belowe half - people begin declining the money

Question 25

difference in results between dictator and ultimatum

Answer 25

• 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

Question 26

Fehr 2000
Cooperation and punishment

Answer 26

• 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

Question 27

what is Fehr and Schmidt theory of inequality aversion?

Answer 27

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

Question 28

extra

Answer 28

people dislike inequality and care for equity