lecture 4 - social interactions

Question 1

how can social interactions be modelled?

Answer 1

through game theory

Question 2

how can desirable outcomes be reached?

Answer 2

when people interact through a combination of self interest, regard for wellbeing of others and appropriate institutions

Question 3

although self interest can be socially beneficial why can it be harmful?

Answer 3

if there is no regard for other people then it can be harmful towards society such as producing waste products such as pollution (public bad)

Question 4

what is game theory?

Answer 4

a way of undertsnaing how people interact based on the constraints that limits actions, motives and beliefs about what others do

a way of modelling how people interact

Question 5

what are important motives explaining how people interact?

Answer 5

self interest, concern for others and preferences for fairness

Question 6

what does concern for others and fairness allow?

Answer 6

us to internalise the effects of our actions on others and can contribute to good social outcomes

Question 7

what is a social dilemma?

Answer 7

a situation in which actions that are taken independently by self interested individuals that results in a socially suboptimal outcome e.g traffic jam

Question 8

how can social dilemmas be stopped?

Answer 8

by woking together rather than working in own interest

Question 9

what is an example f a social dilemma?

Answer 9

climate change

e.g paris agreement, places such as US and China have not signed in order to pursuit own self interest in burning coal etc

Question 10

what was garrett hardin’s example of a social dilemma?

Answer 10

the tragedy of the commons

Question 11

how can self interest be beneficial?

Answer 11

if it is channeled mutually

e.g entrepeneurs who are acting in self interest for money can be socially optimal as they are advancing technology

Question 12

in game theory what does the outcome rely on?

Answer 12

what others do

Question 13

what are four terms incvolved in game theory?

Answer 13

1) players - who is in involved in the interaction
2) feasible strategies - which actions each player can take
3) information - what each player knows when choosing actions
4) payoffs - what the outcomes will be for each player for each combination of actions

Question 14

what is the invisible hand?

Answer 14

phrase coined by adman smith, it is an unobservable market force that regulates the market economy, if you buy a coffee you are making the market better off

Question 15

what is the best response in game theory?

Answer 15

strategy that will yield the highest payoff, given the strategy of another player

Question 16

what is the dominant strategy?

Answer 16

a best response to all possible strategies of the other player

Question 17

if both players have a dominant strategy what happens?

Answer 17

it can be predicted that both will use their dominant stretgay

Question 18

what is dominant strategy equilibrium?

Answer 18

an outcome of a game in which everyones plays their dominant strategy, an equilibrium as both are happy so will have no incentives to change their strategy

Question 19

what is prisoners dilemma?

Answer 19

a game with a dominant strategy equilibrium in which the dominant stagy yields lower individual and total payoffs compared to other stratgeies

socially optimal outcome is not reached, compared to if the best response was choice

Question 20

why is prisoners dilemma often not an accurate display of features in real life?

Answer 20

in real life most social interaction are not just a one shot game
but a game of multiple decisions

Question 21

what type of game does a social dilemma usually occur in?

Answer 21

a one shot game

Question 22

in repeated games why are better outcomes usually reached?

Answer 22

social norms, reciprocity and peer punishment

Question 23

what does behaving selfishly in one period do?

Answer 23

if you behave selfishly in one period it may have consequences in the next e.g you r dominant strategy now may not be the same for the next period

Question 24

what does altruism mean?

Answer 24

selfless concern for the wellbeing of others

e.g choosing strategy that would result in less harm to other players and enviro

Question 25

what is altruistic preferences?

Answer 25

when a person is willing to bear a cost in order to help another person

e.g willing to reduce their payoffs so that someone else payoff does not decrease

Question 26

how is altruism linked to prisoners dilemma?

Answer 26

if someones acts atruistically or ha preferences then people both car about each other and socio dilemmas are easiest to resolve

Question 27

what is the public good game?

Answer 27

models behaviour of groups of individuals achieving a common goal, has same properties as prisoners dilemma but describes public good or a resources which all may benefit regardless of contribution

Question 28

what is the sequential game/ultimatum?

Answer 28

where players choose how to devise up economic rents and they have to negotiate
e.g split 5:5 or 8:2

motivated by altruism, social norms and fairness

Question 29

what is a way of resolving conflict of interest that doesn’t always work out?

Answer 29

negotiating

Question 30

why might negotiations work?

Answer 30

social norms might be different in relation to fairness and sharing
- different preferences

Question 31

what are norms and preferences?

Answer 31

norms are ideas about social behaviour that are common to an entire group and preferences are about what you like etc

Question 32

what are the three reasons in which someone might give some of the economic rent to someone else in an ultimatum game?

Answer 32

• altruism - look after others
• fairness
• resiprocity - paying back

Question 33

what are the two rules in the ultimatum game?

Answer 33

proposer

responder

Question 34

what is nash equilibrium

Answer 34

the outcome when each indidivudla best resends t the strategies chosen by everyone else

Question 35

what can cause coordination problems?

Answer 35

multiple nash equilibrium