Altruism and Social Norms Lecture Notes
Altruism and Social Norms in Economics
Overview of Key Concepts
The Ultimatum Game
Game Structure
- Two players: One proposes a split of a prize; the other can accept or reject it.
- If rejected, both receive nothing—this creates a dynamic of fairness versus self-interest.
Behavioural Outcomes
- Most responders will reject offers perceived as unfair (e.g., 80-20 split).
- Purely self-interested responders would accept any offer, but real behaviour shows rejection of low offers, indicating fairness norms.
- In studies, most rejections occur on offers below 50%.
Expected Utility Theory
- Calculating expected pay-offs involves:
ext{Expected Pay-off} = p imes ext{Pay-off} - Examples show different proposals like 50% split (most accepted) and lower offers encountering rejection due to fairness norms.
Competition in the Ultimatum Game
Introducing Competition
- If a second responder is introduced, acceptance and rejection behaviours shift.
- Competition decreases the likelihood of rejecting low offers and alters proposers’ strategies.
Model of Worker Strikes
- Analogy to wages: Employers must consider worker responses to wage offers; low offers risk a strike.
- The ultimatum game can model this interaction clearly.
Coordination Games
Definition and Dynamics
- Players must coordinate their actions without communication, leading to multiple Nash equilibria.
- Example: Choosing between two goods (rice vs. cassava) where both players have best responses that depend on opponent's choice.
Nash Equilibria
- There are two possible equilibria even with conflicting preferences, highlighting the need for communication to achieve optimal outcomes.
- Examples in coding language preferences illustrate conflicts even when cooperation maximizes total benefits.
Application to Climate Change