Deck 14: Selfishness and Altruism

Question 1

Social preferences are a wide class of preferences in which the decision-maker has preferences that incorporate the well-being or actions of other individuals.

Answer 1

True

Question 2

The common saying: "the best way to make yourself happy is to make someone else happy," is an example of the "warm glow."

Answer 2

True

Question 3

Altruism violates assumptions of rationality.

Answer 3

False

Question 4

If Holly's utility increases when Ralph's utility increases, then Holly must be altruistic.

Question 5

There is a set of goods, $x=\left(x_{1}, x_{2}, \ldots x_{N}\right)$ . Yolanda can only afford $x_{1}, x_{4}, x_{N-1}$ . If Yolanda chooses $x_{1}$ then $x_{1}$ is directly revealed preferred to $x_{2}$ .

Question 6

There is a set of goods, $x=\left(x_{1}, x_{2}, \ldots x_{N}\right)$ . Bruce can only afford $x_{1}, x_{4}, x_{N-1}$ . Bruce directly reveal prefers $x_{1}$ over $x_{2}$ and $x_{2}$ over $x_{N-1}$ and indirectly reveal prefers $x_{1}$ over $x_{N-1}$ .

Question 7

Consider the game in Figure 14.6. If player 1 plans to play $T$ at the first node, then his strategy for the game is given by $s_{1}=\{T\}$ .

Question 8

Consider the game in Figure 14.6. Suppose the final pay-off for player playing $L$ was (25.60, 13). This pay-off modification changes the SPNE of the game.

Question 9

Consider the utility function specified on page 14-17: $u(x, r, c)$ , where $x$ is the size of an individual's home, $r$ is their rank in home size relative to their neighbors, and $c$ is other goods. $u(x, r, c)$ is increasing in $c$ and $x$ and decreasing in $r$ . Suppose a tornado comes through your neighbourhood and either totally destroys a house or leaves it undamaged. The largest house in the neighbourhood is destroyed and your house is undamaged. Based only on this information, you can be sure that you utility increased.

Question 10

One solution to the free-rider problem is to make payment for the good compulsory through taxes.

Question 11

In the dictator game, the only subgame is the entire game.

Question 12

When the dictator game is played in the laboratory, any time a dictator gives money to the recipient his actions can be explained by altruism.

Question 13

Positional externalities always reduce an individual's utility.

Question 14

Suppose Dale has three goods in his choice set, a, b, and c, and Dale must choose one good from this choice set on each of three days - each day Dale makes a new choice. Dale has preferences such that $a \sim b \sim c$ . Dale can choose the same good every day or make a new choice every day. Suppose on the first day Dale chooses $a$ , on the second day he chooses $b$ and on the third day he chooses c. Dale's preferences satisfy WARP.

Question 15

If preferences satisfy transitivity then they also satisfy SARP.

Question 16

A person who is willing to pay to make another individual better off is referred to as

A) Irrational
B) Loss Averse.
C) Risk-Loving.
D) Altruistic.

Question 17

If Paula's preferences are complete and transitive, then all of the following must be true EXCEPT

A) Paula's preferences can be expressed with a utility function.
B) Paula is rational.
C) Paula's preferences satisfy WARP.
D) Paula's preferences do not cycle.

Question 18

Ola has utility function given by $u_{O}\left(w_{O}, u_{G}\left(w_{G}\right)\right)$ and Gina has a utility function given by $u_{G}\left(w_{G}\right)$ . Ola is altruistic if which of the following is true?

A) $\frac{\partial u_{O}\left(w_{O}, u_{G}\left(w_{G}\right)\right)}{\partial w_{O}} \geq 0$
B) $\frac{\partial u_{O}\left(w_{O}, u_{G}\left(w_{G}\right)\right)}{\partial w_{O}}<0$
C) $\frac{\partial u_{G}\left(w_{G}\right)}{\partial w_{G}}>0$
D) $\quad \frac{\partial u_{O}\left(w_{O}, u_{G}\left(w_{G}\right)\right)}{\partial u_{G}\left(w_{G}\right)} \geq 0$

Question 19

Marco's preferences are complete, but not transitive. Molly's preferences are complete and transitive. Molly is also altruistic towards Marco. Which of the following are true?

A) Marco and Molly are rational.
B) Marco's preferences are not rational, but Molly's preferences are rational.
C) Neither Marco nor Molly is rational.
D) Molly's preferences are not rational, but Marco's preferences are rational.

Question 20

Joe can afford two bundles of goods: $x_{1}$ and $x_{2}$ . Joe chooses $x_{1}$ . Thus $x_{1}$ is strictly revealed preferred to $x_{2}$ only if

A) $p_{2} x_{2}<p_{1} x_{1}$
B) $p_{2} x_{2}=p_{1} x_{1}$
C) $p_{2} x_{2}>p_{1} x_{1}$
D) Both are affordable.

Question 21

Consider the game in Figure 14.6. How many subgames does the game contain?

A) 1
B) 2
C) 6
D) 5

Question 22

Consider the utility function specified on page 14-17: $u(x, r, c)$ , where $x$ is the size of an individual's home, $r$ is their rank in home size relative to their neighbors, and $c$ is other goods. Which component of the utility function represents the notion of "other-regarding preferences?"
a. $x$
b. $r$
c. $c$
d. The curvature of $u($ . $) .$

Question 23

Which of the following goods are non-rival?

A) A cable television show.
B) A pair of shoes.
C) An iPod.
D) Roads.

Question 24

Which of the following goods are non-excludable?

A) Roads.
B) A cable television show.
C) An apple.
D) An Ipod.

Question 25

Which of the following is a public good?

A) Roads.
B) A cable television show.
C) An iPod.
D) National Defence.

Question 26

The free-rider problem occurs when goods are

A) Non-rival and non-excludable.
B) Rival and non-excludable.
C) Non-rival and excludable.
D) Rival and excludable.

Question 27

Consider equation 14.9, which shows how much a farmer is willing to contribute to flood control. How much is farmer $i$ willing to contribute if no other farmer has contributed?

A) 0.
B) 1
C) .25
D) .5

Question 28

Government contribution to a public good often results in less private contribution. What is this effect called?

A) Socialism effect.
B) Free-rider effect.
C) Wealth effect.
D) Crowding out effect.

Question 29

In any subgame perfect nash equilibrium (SPNE), how much money should the dictator allocate in the dictator game?

Question 30

Willa and Lora are playing the dictator game. Let $w_{w}$ and $w_{L}$ be the amount of money Willa and Lora receive in the game, respectively. Willa's preferences are given by $U\left(w_{w}, w_{L}\right)=$ $\min \left(w_{w}, w_{L}\right)$ . Willa plays the role of the dictator and must decide how to split $\$ 10$ . How much will Willa keep and how much will she give to Lora?

Question 31

There is a set of goods, $x=\left(x_{1}, x_{2}, \ldots x_{N}\right)$ . Nicole can only afford $x_{1}, x_{4}, x_{N-1}$ . Give an example in which Nicole's preferences satisfy WARP, but are not transitive.

Question 32

Consider the game in Figure 14.6. Suppose the final pay-off for player playing $L$ was (25.60, 13). Find the SPNE of the modified game.

Question 33

There is a set of goods, $x=\left(x_{1}, x_{2}, \ldots x_{N}\right)$ . Trudy can only afford $x_{1}, x_{4}, x_{N-1}$ . Trudy directly reveal prefers $x_{1}$ over $x_{4}$ , and $x_{4}$ over $x_{N-1}$ . Write out, in words, what must be true for Trudy's preferences to satisfy GARP.