Analysis of an Allocation Decision
Two individuals, Alex and Ben, are to share a project bonus of $100. Alex is responsible for deciding the split and chooses to allocate $50 to themself and $50 to Ben. Assuming Alex has purely self-interested preferences, analyze this decision. In your analysis, explain whether this choice is consistent with the assumption of pure self-interest. Describe what the graphical representation of Alex's preferences would look like (with Alex's share on the horizontal axis) and identify the allocation that would have maximized Alex's satisfaction according to this model.
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An individual is deciding how to allocate a resource between themself and another person. This individual is purely self-interested, meaning their level of satisfaction depends only on the amount of the resource they personally receive; the amount the other person receives has no impact on their satisfaction. If a graph is drawn with the individual's own allocation on the horizontal axis and the other person's allocation on the vertical axis, what shape will this individual's indifference curves have?
Consider a scenario where an individual's preferences for allocating a sum of money are represented on a graph. The individual's own share is on the horizontal axis, and another person's share is on the vertical axis. If this individual is purely self-interested, moving from an allocation of ($50 for self, $50 for other) to an allocation of ($50 for self, $100 for other) will increase their level of satisfaction.
Predicting Allocation Choices
Explaining the Shape of Self-Interested Indifference Curves
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An individual's preferences are graphed with their own payoff on the horizontal axis and another person's payoff on the vertical axis. If this individual is purely self-interested, match each concept to its correct graphical or theoretical description.
When graphing an individual's preferences for allocating a resource, with their own share on the horizontal axis and another person's share on the vertical axis, a purely self-interested preference results in indifference curves that are ____.
An individual with purely self-interested preferences is presented with several possible ways to divide a resource between themself and another person. Their own share is listed first in each pair, and the other person's share is second. Arrange the following allocations in order from least preferred to most preferred from the perspective of this self-interested individual.
Analysis of an Allocation Decision
An individual's preferences for dividing a resource between themself and another person are represented by a set of indifference curves on a graph. The individual's own share is on the horizontal axis, and the other person's share is on the vertical axis. The indifference curves are all perfectly vertical lines. What does this graphical representation reveal about the individual's preferences?