Unit 4 - Social Interactions

Question 1

Define Social Dilemma.

Answer 1

A situation in which actions taken independently by individuals in pursuit of their own private objectives result in an outcome which is inferior to some other feasible outcome that could have occurred if people had acted together, rather than as individuals.

Question 2

What is the Tragedy of the Commons?

Answer 2

This theory developed by Garett Hardin in 1968 is for example when a fisherman acts in his own interest and fishes more than what is recommended. The next fisherman will therefore act in the same interest and overall, the tragedy of no more limited resource (fish) has come to benefit none of the afflicted.

Question 3

Describe a free ride.

Answer 3

Benefiting from the contributions of others to some cooperative project without contributing oneself. (ex: When one person cleans, everyone benefits, but it is hard work. Whoever cleans up, bears this cost.)

Question 4

What is Game theory?

Answer 4

A branch of mathematics that studies strategic interactions, meaning situations in which each actor knows that the benefits they receive depend on the actions taken by all.

Question 5

Define Strategic Interaction.

Answer 5

A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them).

Question 6

What is a Game?

Answer 6

A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs.

Question 7

Illustrate Division of Labor.

Answer 7

The specialization of producers to carry out different tasks in the production process (made independently). Also known as: specialization.

Question 8

Describe a Payoff.

Answer 8

The benefit to each player associated with the joint actions of all the players.

Question 9

Define a Dominant Strategy.

Answer 9

Action that yields the highest payoff for a player, no matter what the other players do.

Question 10

What is a Dominant Strategy Equilibrium?

Answer 10

An outcome of a game in which every player plays his or her dominant strategy.

Question 11

Describe the Prisoners’ Dilemma.

Answer 11

A game in which the payoffs in the dominant strategy equilibrium are lower for each player and also lower in total, than if neither player played the dominant strategy.
= no one wins whilst playing their dominant strategy

Question 12

What are altruistic Preferences?

Answer 12

A person who is willing to bear a cost in order to help another person is said to have altruistic preferences.

Question 13

Define Social Preferences.

Answer 13

Preferences that place a value on what happens to other people, even if it results in lower payoffs for the individual.
i.e. altruism is a social preference (and so are spite or envy)

Question 14

Illustrate a Zero-sum Game.

Answer 14

A game in which the payoff gains and losses of the individuals sum to zero, for all combinations of strategies they might pursue. (you don’t lose but you also don’t win)

Question 15

What is a Public Good?

Answer 15

A good for which use by one person does not reduce its availability to others. Also known as: non-rival good.

Question 16

Define revealed preference.

Answer 16

A way of studying preferences by reverse-engineering the motives of an individual (her preferences) from observations about her or his actions.

Question 17

Extra info :) :

Answer 17

A market-like incentive (like implementing a fine for picking up your child late from daycare) crowds out social preferences (like morals or altruism)

Question 18

Describe Inequality Aversion.

Answer 18

A dislike of outcomes in which some individuals receive more than others. (50-50)

Question 19

Give examples of a subject’s potential preferences and motives.

Answer 19

Pure self-interest, altruism, inequality aversion, or reciprocity.

Question 20

What is a Sequential Game?

Answer 20

A game in which all players do not choose their strategies at the same time and players that choose later can see the strategies already chosen by the other players, for example, the ultimatum game.

Question 21

Define a Simultaneous Game.

Answer 21

A game in which players choose strategies simultaneously, for example, the prisoners’ dilemma.

Question 22

What is a Minimum Acceptable Offer?

Answer 22

In the ultimatum game, the smallest offer by the Proposer, that will not be rejected by the Responder. Generally applied in bargaining situations to mean the least favorable offer that would be accepted.

Question 23

Define an Expected payoff.

Answer 23

The payoff that one may expect, given what the other person is likely to do (accept or reject) in case this offer is made. Your expected payoff is the payoff you get IF the offer is accepted, multiplied by the probability that it will be accepted.

Question 24

Illustrate a Nash Equilibrium.

Answer 24

A set of strategies, one for each player in the game, such that each player’s strategy is the best response to the strategies chosen by everyone else.
= We should expect to see all players doing the best they can, given what others are doing.