Behavioural Economics of Social Preferences

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Questions and Answers

What is the primary mechanism through which cooperators retaliate against free-riders in the standard public goods game?

Enforcing group rules

Withholding their cooperation (correct)

Offering rewards

Increasing their contributions

What is essential for punishment to sustain cooperation according to the findings?

The anonymity of contributors

The frequency of punishment

The legitimacy of punishment (correct)

The severity of punishment

In what scenario can cooperation be sustained more effectively according to the findings?

When free-riders are punished harshly

When groups are formed randomly

When those predisposed to cooperate associate with like-minded individuals (correct)

When participants have varied contributions

What role does altruistic punishment play in group dynamics?

It promotes and sustains cooperation. Signup and view all the answers

Which option best describes the role of free-riders in cooperation?

They undermine cooperation among contributors Signup and view all the answers

How does the concept of ecological validity relate to behavioral studies?

It addresses the applicability of findings to real-world scenarios. Signup and view all the answers

Which of the following is true regarding the self-interest axiom and the Ultimatum Game?

Responders typically accept the lowest positive offer. Signup and view all the answers

What psychological behavior do people exhibit towards free-riders?

They enjoy punishing them Signup and view all the answers

What effect does group membership have on individual behavior in terms of cooperation?

It conditions behavior based on expectations Signup and view all the answers

What factor does effective punishment depend on?

The legitimacy of the punishment. Signup and view all the answers

How does strong reciprocity manifest in the context of punishment?

By engaging in punishment as a deterrent to others Signup and view all the answers

What is a key aspect of how behaviour is conditioned within social groups?

It is conditioned on group membership. Signup and view all the answers

What is the primary focus of symbolic punishment in a cooperative setting?

To effectively sustain cooperation among group members Signup and view all the answers

What is the main reason people express enjoyment in punishing free riders?

To reinforce social norms and cooperation. Signup and view all the answers

Which of the following does NOT typically describe strong reciprocity?

Preference for inequitable outcomes. Signup and view all the answers

In group behavior, what do free riders tend to do?

Undermine cooperation among group members. Signup and view all the answers

What is a primary consequence of free-riders in cooperative situations?

They undermine cooperation. Signup and view all the answers

Which factor is crucial for effective punishment in cooperative scenarios?

The legitimacy of the punishment. Signup and view all the answers

What behavior was observed in groups regarding high contributors and punishment?

There was a tendency to punish high contributors. Signup and view all the answers

What is characterized by altruistic punishment in cooperative settings?

Sustaining cooperation through penalties. Signup and view all the answers

What is a significant finding regarding average payoffs when punishment options are available?

Average payoffs decrease substantially. Signup and view all the answers

Which aspect influences individuals' punishment behavior in groups?

Group membership conditioning. Signup and view all the answers

Why might individuals enjoy punishing free-riders?

It serves as a form of social validation. Signup and view all the answers

What role does symbolic punishment play in cooperative settings?

It serves to deter free-riders. Signup and view all the answers

What is the relationship between altruistic punishment and group membership?

Altruistic punishment is conditioned on group membership. Signup and view all the answers

Which of the following statements accurately describes the effectiveness of punishment?

Effective punishment relies on its perceived legitimacy. Signup and view all the answers

What role do free-riders play in the context of cooperation?

Free-riders undermine cooperation within a group. Signup and view all the answers

How does symbolic punishment compare to traditional punishment?

Symbolic punishment can still influence behavior effectively. Signup and view all the answers

What can be concluded about strong reciprocity from the findings?

Strong reciprocity encourages altruistic punishment among individuals. Signup and view all the answers

What is the primary reason why self-interested players would avoid punishing others?

The cost of punishment outweighs its benefits. Signup and view all the answers

What is the primary impact of ecological validity on punishment behavior?

Higher ecological validity ensures more realistic punishment scenarios. Signup and view all the answers

What motivates people to punish free riders in cooperative situations?

A commitment to upholding fairness and cooperation. Signup and view all the answers

What is a primary reason for the decay in cooperation during public goods games?

Subjects learn to maximize their payoffs Signup and view all the answers

Which of the following is NOT a key finding related to cooperation in public goods games?

Individuals inherently distrust free-riders Signup and view all the answers

What did Cookson (2000) find regarding subjects in multi-round public goods games?

They refuse to contribute immediately in a second game Signup and view all the answers

Which concept explains why individuals may continue to cooperate despite the presence of free-riders?

Altruistic punishment Signup and view all the answers

How does group membership impact behavior in public goods games?

People are conditioned by their group membership Signup and view all the answers

What role does legitimacy play in the effectiveness of punishment in cooperative scenarios?

Legitimate punishment promotes cooperation Signup and view all the answers

What is symbolic punishment, and how is it perceived in cooperative behavior?

Punishment intended to convey a social message Signup and view all the answers

Which of the following accurately describes free-riders in public goods games?

They undermine the cooperation of others Signup and view all the answers

What is a characteristic of a free-rider?

Benefits from the contributions of others Signup and view all the answers

How does altruistic punishment impact cooperation?

It sustains cooperation among group members Signup and view all the answers

What role does legitimacy play in effective punishment?

Effective punishment depends on its perceived legitimacy Signup and view all the answers

What occurs in the public goods game after contributions are made?

The total contributions are multiplied and equally distributed Signup and view all the answers

What motivates people to punish free-riders, according to the findings?

A sense of enjoyment from enforcing group norms Signup and view all the answers

How is behavior affected in the context of group membership?

Group membership can influence cooperative behavior Signup and view all the answers

What is a result of free-riding in group settings?

Undermining overall cooperation within the group Signup and view all the answers

What does the decay of cooperation in group settings indicate?

Group success diminishes due to individual interests Signup and view all the answers

Study Notes

Behavioural economics bridges economics and psychology
The standard economic model, a normative theory, describes how people should make decisions, not how they do make decisions.
This model assumes humans are rational, calculating, and perfectly selfish (homo economicus)
Psychologists have challenged these strong assumptions.
Evidence from experiments suggests people exhibit social preferences.

Learning Objectives

Behavioural economics is about testing the standard economic model on humans to see if it works, fails, and can be modified
The goal is not to replace the standard economic model, but to enhance it with psychological insights to improve its predictive and descriptive utility.
Social preferences include concern for others, desire to uphold ethical norms, generosity, fairness, and honesty

What Is Behavioural Economics?

Economists have a simple model of decision-making.
This standard economic model is normative, not descriptive.
The model posits that humans are driven by self-interest.

What Is Behavioural Economics?

Behavioural economics is a field that bridges economics and psychology.
It's about testing the standard economic model on humans and seeing when it works, when it fails, and seeing whether it can be improved.

The self-interest axiom (from the standard economic model) can be questioned.
Social preferences include positive and negative concern for the well-being of others, adhering to ethical norms, fair outcomes, and virtues like honesty.
Social preferences challenge the self-interest axiom.

Real-life observations often contradict the standard economic model.
Societies demonstrate cooperation beyond animal kingdom levels, including acts like voting, collective actions, resource conservation, paying taxes, and charitable donations.
The self-interest hypothesis is challenged by the observed degree of cooperation.

Laboratory Experiments

Laboratory experiments provide a degree of control.
Participants in experiments can earn considerable money, enabling observation of behaviour under controlled circumstances.
Economic games are used (ultimatum, public goods, dictator, trust game) in these experiments to reveal social preferences.

Key Findings From The Experimental Laboratory

Economic games highlight key findings, such as strong reciprocity, free-rider behaviour, altruistic punishment, and how punishment effectiveness depends on legitimacy.

1. Strong Reciprocity Is Common

Strong reciprocators are willing to sacrifice resources to reward fairness and punish unfairness, even without personal gain.
Positive reciprocity (kindness met with kindness) and negative reciprocity (hostility met with hostility) are common.

Ultimatum Game

Two players: the proposer and the recipient.
The proposer has an initial sum of money and proposes how much of it they will give to the recipient.
The recipient can either accept or reject the offer.
If accepted, the recipient gets the money offered and the proposer keeps the rest.
If rejected, both receive nothing.

Ultimatum Game (continued)

Self-interest theory predicts low offers will always be accepted.
However, the model does not account for responders rejecting low offers or proposers offering more than necessary to secure acceptance.

Proposers often offer a significant portion of the money to the recipient.

Receivers frequently reject low offers, highlighting a desire for fairness rather than strict self-interest.

Ultimatum Game (continued)

Rejecting low offers reflects a desire to punish unfairness, though this incurs a cost to the responder.

Prisoners' Dilemma Game

Two players, Alice and Bob, are given a choice to cooperate (C) or defect (D).
A payoff matrix shows the benefits of cooperating vs defecting.
Self-interest might predict that both defect, but cooperating yields higher rewards in some situations.

Prisoners' Dilemma Game (continued)

Many experiments reveal that a significant portion of participants cooperate despite the temptation to defect.
This defies the pure self-interest prediction

2. Free-Riders Undermine Cooperation

A free-rider is someone who enjoys the benefits of a group's contributions without participating.
In repeated social dilemmas, cooperation can decline due to the presence of free-riders.
This is often observed in public goods games.

Public Goods Game

A group of players is given an initial amount of money.
Players decide how much to contribute to a shared pool.
The pool's value is multiplied and distributed equally among all players.

Decay of Cooperation

Cooperation often declines over time in public goods games when free-riders are present.
High initial contributions tend to decrease with repeated rounds as subjects learn to maximise their payoffs.

3. Altruistic Punishment Sustains Cooperation

Altruistic punishment is costly to the punisher but serves to punish free-riders, ensuring cooperation within the group.

Fehr and Gächter (2002): Public Goods With Punishment Game

A public goods game with an option to punish free-riders is implemented.
Punishment discourages free-riding and helps maintain cooperation.
The punishment's cost to the punisher (as well as the target) highlights its altruistic nature.

Fehr and Gächter (2002) - Continued

Results show that punishment significantly increases cooperation, demonstrating its positive effect.

4. Effective Punishment Depends On Legitimacy

Altruistic punishment only works if legitimate.
Its effectiveness is influenced by social norms and perceptions of fairness.

Altruistic and Antisocial Punishment

Herrmann et al. (2008) assessed punishment across various societies.
Legitimacy of punishment varied across cultures.

Herrmann et al. (2008): Summary

Legitimacy of punishment affects its effectiveness across diverse groups.

Does Frequency of Interaction Matter?

Repeated interactions over a larger number of rounds leads to stronger positive effects of punishment.

6. People Punish Those Who Hurt Others

People are willing to punish those who hurt others in accordance with shared ethical norms, even if this affects their own payoffs.
This contrasts with mere retaliation for direct damage alone,

Three players take part: a dictator, a recipient, and an observer.
The observer can administer punishment based on the dictator's actions.
Punishments are costly to the punisher, highlighting the ethical components.
Observed behavior suggests that punishment happens more strongly if there's fairness.

7. Behaviour Is Conditioned on Group Membership

Cultural and other group influences often affect cooperation and interactions.

Trust Game

Trust games involve two players where one (Alice) transfers resources to another (Bob).
Bob can then return some of this augmented amount back to Alice.
Even anonymous interactions often reveal significant cooperative behaviour, demonstrating social preferences.

8. People Enjoy Cooperating and Punishing Free Riders

Neuroscience studies reveal the neural basis associated with cooperation and punishment of violators of social norms in games.

9. Do Experimental Results in the Laboratory Reflect Real-Life Behaviour?

Evidence suggests that experiments reflect real-world behaviours to some extent (ecological validity) through examples in fields like fishing and resource management.

Summary & Conclusions

Experimental results frequently differ from the self-interest axiom.
There is ubiquitous evidence demonstrating social preferences such as generosity towards others, a concern with fairness, and a desire to avoid inequality.

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Description

Explore the intersection of psychology and economics through behavioural economics. This quiz delves into how human decision-making can deviate from traditional economic models, highlighting social preferences such as fairness and generosity. Understand how psychological insights enrich economic theories.