Altruism

Inequality Aversion

Spite and Envy as Social Preferences

Zoë's Dilemma with Lottery Winnings

Situational Nature of Social Preferences

In a one-time, anonymous interaction, Person A is given $20 and can offer any portion of it to Person B. Person B has no choice but to accept the offer. A model assuming individuals are motivated solely by their own financial gain would predict that Person A will offer $0 and keep the full $20. However, in real-world experiments, Person A often chooses to offer a positive amount (e.g., $5). Which of the following provides the best explanation for this observed behavior?

An economic model that incorporates the idea that individuals' utility can be influenced by the well-being of others will always predict more generous and cooperative outcomes compared to a model assuming individuals only care about their own direct payoffs.

Partnership Dissolution Decision

Each scenario below describes an individual's decision. Match each scenario to the underlying preference that best explains the behavior.

Analyzing a Bonus Split Decision

Evaluating Assumptions in Economic Models

When an individual's personal satisfaction or utility is affected by the material payoffs or well-being of other people, and not just their own, they are said to exhibit ____.

In which of the following scenarios does an individual's action provide the clearest evidence that their utility is influenced by more than just their own direct material payoff?

An individual whose utility is solely determined by their own material payoff will always choose a different course of action than an individual whose utility is also influenced by the well-being of others, given an identical set of choices that impact both individuals.

The Community Garden Decision

Altruism

Inequality Aversion

Positive Reciprocity

Reciprocity

Classification of Social Preferences

Altruism

Inequality Aversion

Spite and Envy as Social Preferences

An individual is offered two ways to split a bonus between themselves and a colleague. In Option 1, the individual gets $100 and the colleague gets $20. In Option 2, both the individual and the colleague get $80. The individual chooses Option 2. This decision to accept a lower personal payoff in favor of a perfectly even distribution is the clearest demonstration of which type of social preference?

Analyzing a Competitive Decision

Match each scenario with the type of social preference it best illustrates.

Distinguishing Motivations for Fairness

An individual is given the choice between two outcomes. Outcome A: they receive $10 and another person receives $18. Outcome B: they receive $9 and the other person receives $9. If the individual chooses Outcome B, this action exclusively demonstrates that their utility is negatively affected by the well-being of others.

Comparing Social Preference Models

Interpreting Choices to Identify Social Preferences

An individual's satisfaction from an outcome is represented by the utility function U(x_i, x_j) = x_i - 0.5 * x_j, where x_i is the individual's own monetary payoff and x_j is another person's monetary payoff. Based on this function, what type of social preference does this individual exhibit?

Illustrating Altruistic Preferences

Designing an Employee Bonus System