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Social Preferences Determine Indifference Curve Shape (Figure 4.10)
The shape of an individual's indifference curves in a resource allocation scenario, such as the one depicted in Figure 4.10 for Zoë, is determined by their underlying social preferences. Specifically, the curves will have a distinct shape depending on whether the individual is altruistic or purely self-interested.
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Introduction to Microeconomics Course
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CORE Econ
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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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)
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A graph is constructed to show the possible distributions of a sum of money between two people, Maria and Carlos. Maria's total money is plotted on the horizontal axis, and Carlos's total money is on the vertical axis. If Maria's indifference curves on this graph are perfect vertical lines, what can be inferred about her preferences?
Interpreting Social Preferences from Indifference Curves
Consider a scenario where an individual's payoff is plotted on the horizontal axis and another person's payoff is on the vertical axis. Match each description of the individual's preferences to the corresponding shape of their indifference curves on this graph.
Consider a graph where an individual's monetary payoff is on the horizontal axis and another person's payoff is on the vertical axis. If this individual's indifference curves are upward-sloping, it implies that for them to feel equally well-off, any increase in the other person's payoff must be offset by an increase in their own payoff.
Graphical Representation of Social Preferences
Explaining Altruistic Preferences via Indifference Curves
Consider a graph where Person A's payoff is on the horizontal axis and Person B's payoff is on the vertical axis. If Person A's satisfaction depends solely on the total combined payoff for both individuals (i.e., the sum of Person A's payoff and Person B's payoff), what will be the shape of Person A's indifference curves?
Predicting Choices Based on Social Preferences
Imagine a scenario where outcomes are represented on a graph, with your monetary payoff on the horizontal axis and another person's payoff on the vertical axis. You are currently at an allocation of ($10 for you, $10 for the other person). If you have altruistic preferences, meaning you derive satisfaction from both your own and the other person's well-being, which of the following alternative allocations would unambiguously place you on a higher indifference curve?
Consider a graph where your monetary payoff is plotted on the horizontal axis and another person's payoff is on the vertical axis. If your indifference curves are downward-sloping but very steep, what does this reveal about your preferences?
Figure 4.10 (Left Panel) - Visualizing Zoë's Altruistic Preferences
Figure 4.10 (Right Panel) - Visualizing Self-Interested Preferences