SOCIAL INTERACTIONS UNIT 4 Flashcards
Social interactions
Situations in which the actions taken by each person affect other people’s outcomes as well as their own
Game theory:
A study of strategic behavior: situations in which each actor knows that the benefits they receive depend on the actions taken by all
Best response
what is best for you given actions that are possible for others
Dominant strategy
is a strategy you choose to enact. A strategy needs to produce the highest possible payoffs in a Scenario
Dominant strategy equilibrium:
An outcome in which every player plays their dominant strategy
Nash equilibrium:
if people choose their actions independently, the economy can get stuck in an equilibrium in which all players are worse off than they would be at the other equilibrium
Prisoner’s dilemma:
A game in which the payoffs in the dominant strategy equilibrium are lower for each player and lower in total than if neither player played their dominant strategy
Implications from the Prisoners’ Dilemma game:
Self-interest can lead to favorable outcomes (the invisible hand game) but ca also lead to undesirable outcomes (the prisoners’ dilemma game)
Markets can harness self-interest to improve the workings of the economy, but market coordination has limitations
By coordinating in advance, the players could have averted the undesirable outcome
Social (other-regarding) preferences:
Preferences that place a value on what happens to others. People, even if it results in lower payoffs for the individual
The types of Social preferences:
Altruistic preferences
Envy, spiteful preferences
Altruistic preferences:
A person who is willing to bear the cost to help another person
Envy, spiteful preferences:
A person who is willing to bear a cost of punishing another person
A one-shot sequential game:
played in stages. Players do not choose their strategies at the same time, unlike the simultaneous games
