Chapter 4 Flashcards
What is a social dilemma?
A situation in which action taken independently by self-interested individuals result in a socially suboptimal outcome
What is tragedy of the commons?
Common property or common resources are over exploited
What is free riding?
One person/ party bears all the cost while everyone enjoys the benefits
What is a dominant strategy?
A best response to all possible strategies of the other player (one option will always get you the best outcome no matter what the other player plays)
What is dominant strategy equilibrium?
An outcome of a game in which everyone plays their dominant strategy
What is a Nash equilibrium?
Set of strategies such that each players strategy is the best response to strategies chosen by everyone else
No player has an incentive to deviate unilaterally
What is the prisoner’s dilemma?
A game with a dominant strategy equilibrium in which playing the dominant strategy yields a lower individual and totally payoff compared to other strategies
The socially optimum outcome isn’t achieved
What is altruism?
The act of thinking about how your actions could affect other players
How would altruism affect the prisoner’s dilemma?
Is they both choose to altruistic then the over all cost to all players is lower but their individual costs are higher
What motives can affect outcomes in the public goods game and the ultimatum game?
Inequality aversion: dislike outcomes in which someone relieves more than others
Reciprocity: being kind/ helpful to others who are kind/helpful
What makes people happy to contribute in public goods games?
People are happy to continue contributing as long as everyone else is still reciprocating
The ability to identify and punish free-riders increases contributions
What is an ultimatum game?
A sequential game where players choose how to divide up economic rent (eg cash prize)
What can the proposer’s offer be motivated by?
Altruism Fairness Inequality aversion Social norms Reciprocity
How would you calculate reciprocity?
R=strength of responders reciprocity motive
R(X-Y) to be satisfaction of rejecting low offer
Y= gains from accepting
X= prize split into social norms
Y > R(X-Y) offer accepted
Y < R(X-Y) offer rejected
How is expected payoff in the ultimatum game calculated?
X=Percentage of people who took the offer
Y=what was the offer accepted
A=full amount on offer
X*Y of A
