Learn Before
Zoë's Dilemma with Lottery Winnings
This example introduces a scenario that contrasts with standard self-interested models, such as a personal budgeting problem. A student named Zoë wins £200 in a lottery and must decide whether to keep the entire amount or share some with her flatmate, Yvonne. The choice she makes is not about consuming goods herself but depends on her social preferences in this specific context—that is, whether she acts out of altruism or self-interest.
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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
Introduction to Microeconomics Course
Related
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
Learn After
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)