Figure 4.11 (reproduced as E4.1) - Zoë's Optimal Altruistic Choice

An individual must decide how to allocate a fixed sum of money between themself and another person. Consider two scenarios regarding the individual's preferences. In Scenario A, the individual is completely self-interested, caring only about the amount of money they keep. In Scenario B, the individual is altruistic, deriving satisfaction from both their own share and the other person's share. How would the individual's optimal choice of allocation differ between Scenario A and Scenario B, assuming they aim to reach their highest possible level of satisfaction within the given constraints?

An individual receives a $100 windfall and is deciding how to split it between themself and another person. The individual is altruistic, meaning their personal satisfaction increases with both the amount they keep and the amount they give away. After considering all possibilities, they choose to keep $50 and give $50. What does this specific choice most strongly suggest about their preferences?

Analyzing a Financial Windfall Decision

Explaining Different Choices

An individual is deciding how to allocate a fixed sum of money between themself and another person. If this individual is purely self-interested, they will always choose to keep all the money for themself, regardless of the shape of their indifference curves.

An individual has won a prize and must decide how to allocate it between themself and another person. Match each description of the individual's preferences to the most likely allocation choice they will make to achieve their highest level of satisfaction.

An individual has a fixed sum of money to allocate between themself and another person. They are altruistic, meaning they gain satisfaction from both the money they keep and the money they give away. After careful consideration of all possible splits, they choose to keep 70% of the money and give away 30%. What does this specific choice most likely reveal about the nature of their preferences?

Analyzing the Optimal Altruistic Choice

Analyzing a Change in Constraints

Two individuals, Jordan and Kai, each have a fixed sum of money to allocate between themselves and another person. Their decision-making process can be visualized on a graph where the horizontal axis is 'money for self' and the vertical axis is 'money for the other person'. A straight line on this graph represents all possible allocations. A set of curved lines represents combinations of allocations that provide equal levels of personal satisfaction to the individual. To make their choice, each individual finds the point on the straight allocation line that touches the highest possible satisfaction curve.

If, for any given allocation, Jordan's satisfaction curves are consistently steeper than Kai's, what does this imply about their final choices?