Consider a scenario involving two farmers, Anil and Bala, who must independently choose a strategy. Anil is faced with a decision that will lead to one of two possible outcomes:

• Outcome X: Anil receives a payoff of 3, and Bala receives a payoff of 3.
• Outcome Y: Anil receives a payoff of 4, and Bala receives a payoff of 1.

If Anil's preferences are strictly self-interested, which outcome will he choose and why?

A farmer with self-interested preferences would be indifferent between an outcome where they receive a payoff of 2 and the other farmer also receives 2, and an outcome where they receive a payoff of 2 but the other farmer receives 4.

The price of concert tickets, a good that Sarah frequently purchases, decreases significantly. In response, Sarah not only attends more concerts but also starts buying more expensive merchandise at the concerts, something she rarely did before. Which part of Sarah's new behavior is explained exclusively by the change in her purchasing power?

Predicting Farmer Decisions

Bala, a farmer with self-interested preferences, is evaluating four potential outcomes from a joint project with another farmer. The outcomes are presented as pairs of payoffs (Bala's Payoff, Other Farmer's Payoff). Arrange these outcomes from the one Bala would most prefer to the one she would least prefer.

Applying Self-Interested Preferences

Two farmers, Anil and Bala, are deciding between two actions that result in the following outcomes, with payoffs listed as (Anil's Payoff, Bala's Payoff):

• Outcome A: (3, 3)
• Outcome B: (4, 1)

Bala tells Anil, 'You should choose the action leading to Outcome A, because our combined payoff of 6 is greater than the combined payoff of 5 in Outcome B.'

If Anil has purely self-interested preferences, why is Bala's argument unlikely to persuade him?

A farmer with purely self-interested preferences is evaluating several potential outcomes. The outcomes are presented as pairs of payoffs: (Farmer's Payoff, Other Person's Payoff). Match each statement describing the farmer's preference with the pair of choices that best demonstrates it.

Evaluating a Farmer's Choice

A farmer, Bala, is presented with two final, guaranteed outcomes from a project with another farmer, Anil. The payoffs are listed as (Bala's Payoff, Anil's Payoff).

• Outcome X: (3, 3)
• Outcome Y: (2, 0)

An observer claims that because Bala has self-interested preferences, she will choose Outcome Y because it maximizes the difference between her payoff and Anil's. Which of the following statements best evaluates this claim?

Predicting Farmer Decisions