EC1A3.1 - Block 1 Intronomics

Question 1

What is meant by gamification?

Answer 1

Gamification (to gamify) is to make an activity more like a game in order to make it more interesting or enjoyable by incentivising people’s engagement in non-game contexts and activities by using game-style mechanics.

Question 2

What is Microeconomics?

Answer 2

Microeconomics starts at the level of individual decision-making and is the study of individuals, households and firms’ behaviour in decision making and allocation of resources. It generally applies to markets of goods and services and deals with individual and economic issues and how individual goals aggregate the behaviour of individuals.

Question 3

What is positve economics?

Answer 3

Positive economics is objective and fact-based which is concerned with the development and testing of positive statements/predictions that are verifiable and measurable using data. Positive statements can be tested, at least in theory, if not always in practice.

POSITIVE ECONOMICS - What do people do? Objective.

Question 4

What is normative economics?

Answer 4

Normative economics is subjective and therefore derived from an opinion or a point of view. Thus the words ‘should’, ‘ought to’ or ‘it is better to’ frequently occur. Normative analysis evaluates different policies and situations with respect to a particular notion of welfare yet the validity of normative statements can never be tested.

NORMATIVE ECONOMICS - What should people do? Subjective, depends on the notion of welfare!

Question 5

Positive or Normative: What is the effect of an increase of 1% income tax on the probability that superstars migrate away from the country?

Answer 5

POSITIVE QUESTION

Question 6

Positive or Normative: What can we say about this effect on lower earners?

Answer 6

POSITIVE QUESTION

Question 7

Positive or Normative: How should the government take the results of this paper into account when setting its tax policy?

Answer 7

NORMATIVE QUESTION

Question 8

Positive or Normative: Are people better off if they know their habit-formation tendencies?

Answer 8

NORMATIVE QUESTION

Question 9

Positive or Normative: Are people aware of their habit-formation tendencies when they sign up to the gym?

Answer 9

POSITIVE QUESTION

Question 10

Positive or Normative: What accounts for the price schedules of gyms?

Answer 10

POSITIVE QUESTION

Question 11

Positive or Normative: Should the government interfere in the market for gyms, given the findings of this paper?

Answer 11

NORMATIVE QUESTION

Question 12

What is adverse selection?

Answer 12

Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited.

Question 13

What is asymmetric information?

Answer 13

Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party.

Question 14

What is moral hazard?

Answer 14

Moral hazard is the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity. This revolves around the question “How do different incentives affect the behaviour of people?”.

Question 15

What is equilibrium?

Answer 15

Equilibrium is a situation in which everyone is simultaneously optimising, i.e., when no individual thinks he/she has another course of available action that is better for them.

An equilibrium is part of Positive analysis in economics, it predicts what will happen in certain situations. Note that this does not mean people are happy in equilibrium nor that this is in any way “best” for everyone.

EXAMPLE. The Prisoner’s dilemma.

Question 16

What is the case of Kitty Genovese?

Answer 16

In the early hours of March 13, 1964, Kitty Genovese, a 28-year-old bartender, was stabbed outside the apartment building where she lived in the Kew Gardens neighbourhood of Queens in New York City, New York, United States. Two weeks after the murder, The New York Times published an article claiming that 38 witnesses saw or heard the attack, and that none of them called the police or came to her aid.

The incident prompted inquiries into what became known as the bystander effect, or “Genovese syndrome”, and the murder became a staple of U.S. psychology textbooks for the next four decades. However, researchers have since uncovered major inaccuracies in the New York Times article. Police interviews revealed that some witnesses had attempted to call the police.

Question 17

What is the bystander effect?

Answer 17

The term bystander effect refers to the phenomenon in which the greater the number of people present, the less likely people are to help a person in distress. When an emergency situation occurs, observers are more likely to take action if there are few or no other witnesses. Being part of a large crowd makes it so no single person has to take responsibility for an action (or inaction).

There are two major factors that contribute to the bystander effect. First, the presence of other people creates a diffusion of responsibility. Because there are other observers, individuals do not feel as much pressure to take action. The responsibility to act is thought to be shared among all of those present.

The second reason is the need to behave in correct and socially acceptable ways. When other observers fail to react, individuals often take this as a signal that a response is not needed or not appropriate.

Question 18

What is a digital bystander?

Answer 18

A digital bystander follows the same concept of a bystander except they’re witnessing the event through technology like a live stream or they’re witnessing the event in person and instead of intervening or calling for the police, they’re recording the event.

Similarly, social media creates large audiences which may attract criminal content which goes often neglected and unpatrolled. Is there a tolerance for violence, bullying and crime online? Is this the moral decay of the digital generation?

Question 19

How do sociologists explain the case of Kitty Genovese?

Answer 19

Sociologists think in terms of groups and culture.

• The reason this happened is cultural, has to do with where it happened.
• Public apathy and moral decay of urban life.
• Ethnocentricity?

Question 20

How do psychologists explain the case of Kitty Genovese?

Answer 20

Psychologists think in terms of individual behaviour.

• What happens to the probability an individual responds, p?
• The reason this happened is due to some universal behavioural effect of human behaviour.
• Diffusion of responsibility.
• Test theories with staged examples (fake emergencies), yet it is negative as they pollute the subject pool: i.e can’t have test subjects back again as they lose trust.

Question 21

How do economists explain the case of Kitty Genovese?

Answer 21

Economists think in terms of understanding social outcomes based on a theory of individual behaviour. Game theory is a set of modelling tools to achieve this.

The probability that someone called the police:

• Each subject helped with probability p.
• Probability that no one helped is (1-p)^n.
• Therefore, the probability that at least one helped is: P(at least 1)=1-(1-p)^n

Question 22

What is a public good?

Answer 22

In economics, a public good refers to a commodity or service that is made available to all members of society. Typically, these services are administered by governments and paid for collectively through taxation.

Examples of public goods include law enforcement, national defence, and the rule of law. Public goods also refer to more basic goods, such as access to clean air and drinking water.

Question 23

What is nash equilibrium?

Answer 23

Nash equilibrium is a concept within game theory where the optimal outcome of a game is where there is no incentive to deviate from the initial strategy.

Overall, an individual can receive no incremental benefit from changing actions, assuming other players remain constant in their strategies. A game may have multiple Nash equilibria or none at all.

Based on:

1. Rationality
2. Beliefs are correct

Question 24

How do you define conjecture?

Answer 24

A conjecture is a conclusion that is based on information that is not certain or complete.

Question 25

What is the Equilibrium Condition?

Answer 25

If 0 < p < 1, then it must be that the neighbour is indifferent between calling or not calling

• Payoff from calling = X-1
• Payoff from not calling =(1-(1-p)^n-1 )×X
• X-1 = (1-(1-p) )×X