Unit 4: Social Interactions Flashcards
What are social interactions?
Situations where one person’s choices affect others’ outcomes.
What is game theory?
The study of strategic behaviour where outcomes depend on others’ actions.
What is a dominant strategy?
A strategy that yields the best outcome regardless of the other player’s action.
What is the Invisible Hand game?
A game showing how individual self-interest can lead to socially desirable outcomes.
What is the Prisoners’ Dilemma?
A game where rational self-interest leads to worse outcomes for all.
What is a Nash equilibrium?
An outcome where no player can improve by changing their strategy alone.
Can a Nash equilibrium be inefficient?
Yes, it is stable but not necessarily optimal.
What is a dominant strategy equilibrium?
An outcome where all players choose their dominant strategies.
Why can multiple Nash equilibria be problematic?
Players may get stuck in a suboptimal equilibrium without coordination.
What are social (other-regarding) preferences?
Preferences that value the outcomes of others, not just oneself.
What is altruism in economics?
A willingness to bear a cost to help someone else.
What is spite or envy in economic preferences?
A willingness to bear a cost to reduce another’s payoff.
What does the Ultimatum Game test?
Whether people value fairness over pure monetary gain.
What is the typical result of the Ultimatum Game?
Proposers offer 30–50%, and low offers are often rejected.
What does rejection in the Ultimatum Game suggest?
People are willing to sacrifice money to punish unfairness.
What can help escape bad equilibria?
Coordination, communication, and social norms.
What is the outcome of the Invisible Hand game?
Specialization leads to efficient and mutually beneficial outcomes.
How do social norms impact economic outcomes?
They can promote cooperation and fairness.
Why is the Prisoners’ Dilemma a dilemma?
Because cooperation leads to better outcomes, but is not individually rational.
How do economists model fairness?
By incorporating social preferences into utility functions.
