Learn Before
Altruistic Choice as a Decision Problem, Not a Game
The scenario of Zoë deciding how to share her lottery winnings is modeled as a single-person decision problem, not a strategic game. This is because she is the sole decision-maker, and her choice does not depend on the simultaneous actions of another player. Consequently, the situation can be analyzed using standard optimization tools like indifference curves, in the same way one would model a consumer's choices.
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Social Science
Empirical Science
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Optimal Choices for Altruistic vs. Self-Interested Preferences in Zoë's Dilemma
Zoë's Constrained Optimization Problem
An individual wins £200 and is deciding how much, if any, to share with a friend. The winner's personal satisfaction increases with both the amount of money they keep and the amount their friend receives. Suppose that just before the decision is made, the winner learns that their friend has unexpectedly received a separate £50 gift from another source. How would this new information most likely alter the winner's sharing decision regarding the £200 prize?
Analyzing Preferences in a Sharing Scenario
An individual with purely self-interested preferences wins a £200 prize. This individual would be indifferent between the outcome where they keep all £200 for themselves and an alternative outcome where they keep £150 and give £50 to a friend.
An individual with altruistic preferences wins a £200 prize and is deciding how to split it with a friend. The individual's happiness increases with both the amount of money they keep and the amount their friend receives. Given this, which of the following statements most accurately describes their likely decision-making process?
Inferring Preferences from Choices
An individual wins a £200 prize and is deciding how to allocate it between themself and a friend. The individual's preferences are altruistic, meaning their personal satisfaction is positively affected by both the amount they keep and the amount their friend receives. Given four potential scenarios, which outcome would result in the lowest level of satisfaction for this individual?
Evaluating Altruism from Observed Choices
An individual wins a £200 prize and must decide how to allocate it between themself and a friend. Match each of the following preference types to the allocation choice that an individual holding those preferences would most likely make.
Deconstructing an Altruistic Choice
Zoë's Feasible Set and Budget Constraint in the Lottery Dilemma
Altruistic Choice as a Decision Problem, Not a Game
Modeling Altruistic Choice as a Budget Allocation Problem
Social Preferences Determine Indifference Curve Shape (Figure 4.10)
Learn After
A philanthropist has a fixed budget of $1 million to donate to various charities. The philanthropist is the sole decision-maker, and the charities are passive recipients of any funds they are allocated. Why is this situation best modeled as a single-person decision problem rather than a strategic game?
Strategic Interaction vs. Individual Choice
A person deciding how much of their income to donate to a charity is best modeled as a strategic game because it involves two parties: the donor and the charity.
Modeling an Executive's Bonus Decision
Modeling an Executive's Bonus Decision
Transforming a Decision Problem
Community Project Funding
An economist is modeling several situations involving individual choices. Three of the following scenarios can be analyzed using the same fundamental model of a single agent optimizing their outcome based on their own preferences and constraints. Which scenario is different and would require a model that accounts for the interdependent actions of multiple decision-makers?
Modeling Unilateral Generosity
An economist is analyzing different scenarios involving resource allocation. Match each description of a scenario or analytical tool to the appropriate modeling approach it represents.