Evaluating an Altruistic Decision
An observer analyzes the scenario below and concludes: 'Because Jin has altruistic preferences, he will definitely choose the 'Conservative' method to maximize Kenji's payoff.'
Evaluate the observer's conclusion. Is their reasoning sound? Explain why or why not, based on the principles of decision-making with other-regarding preferences.
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Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Decision-Making with Other-Regarding Preferences
An individual, Alex, has altruistic preferences, meaning his satisfaction depends on both his own and his friend Ben's outcomes. Ben has already chosen to use 'Method Y' for their joint project. Alex must now choose between 'Method X' and 'Method Y'.
- If Alex chooses 'Method X', the payoffs will be (Alex: $30, Ben: $70).
- If Alex chooses 'Method Y', the payoffs will be (Alex: $40, Ben: $40).
Given Alex's specific altruistic preferences, he derives greater personal satisfaction from the (Alex: $30, Ben: $70) outcome than from the (Alex: $40, Ben: $40) outcome.
What will Alex choose to do?
Explaining Altruistic Choice
An individual with altruistic preferences must choose between two possible outcomes. Outcome A is (2, 2), where the first number is their own payoff and the second is another person's. Outcome B is (1, 4). If this individual chooses Outcome B, it proves that their personal satisfaction is determined only by the other person's payoff.
An individual with altruistic preferences must choose between two possible outcomes. Outcome A is (2, 2), where the first number is their own payoff and the second is another person's. Outcome B is (1, 4). If this individual chooses Outcome B, it proves that their personal satisfaction is determined only by the other person's payoff.
An individual, Chloe, has altruistic preferences, meaning her personal satisfaction is positively influenced by the well-being of another person, David. Chloe must choose between two actions that result in the following payoffs, listed as (Chloe's payoff, David's payoff):
- Outcome from Action A: (5, 5)
- Outcome from Action B: (4, 8)
If Chloe chooses Action B, which statement provides the best analysis of her decision?
An individual, Sam, has altruistic preferences, meaning their satisfaction is influenced by both their own income and a colleague's (Pat's) income. Sam must choose between two actions, A and B, which result in different income distributions.
- Action A leads to the outcome (Sam: $500, Pat: $500).
- Action B leads to the outcome (Sam: $400, Pat: $900).
Sam's preferences are represented by indifference curves, where curves further from the origin indicate higher satisfaction. The outcome from Action A lies on indifference curve U1, while the outcome from Action B lies on indifference curve U2. The curve U2 is further from the origin than U1.
Which action will Sam choose, and why?
Evaluating an Altruistic Decision
An individual, Maria, has altruistic preferences, meaning her personal satisfaction is influenced by both her own and her colleague Leo's outcomes. She must choose between two strategies for a project.
- Strategy A results in the outcome (Maria: $100, Leo: $100).
- Strategy B results in the outcome (Maria: $80, Leo: $150).
If Maria chooses Strategy B, what does this decision most directly reveal about her preferences?
Evaluating a Manager's Altruistic Decision