Economics Game Theory In Behavioral Economics Questions Medium
In game theory, social preferences refer to the individual's preferences or concerns for the outcomes of others in addition to their own outcomes. It recognizes that individuals not only care about their own payoffs but also consider the well-being and fairness of others involved in the game.
Social preferences play a crucial role in decision-making as they influence how individuals make choices in strategic situations. These preferences can be categorized into three main types: altruism, reciprocity, and inequity aversion.
Altruism refers to the concern for the well-being of others, where individuals derive utility from increasing the payoffs of others. This can lead to cooperative behavior and the willingness to sacrifice personal gains for the benefit of others.
Reciprocity involves individuals responding to the actions of others, either by rewarding cooperative behavior or punishing non-cooperative behavior. This can create a sense of fairness and encourage cooperation in repeated interactions.
Inequity aversion refers to the aversion individuals have towards unequal outcomes. People tend to prefer fairness and equity, and they may be willing to sacrifice their own gains to reduce inequality. This preference can lead to the rejection of unfair offers in bargaining situations.
Overall, social preferences in game theory recognize that individuals are not solely motivated by self-interest but also consider the well-being and fairness of others. Understanding these preferences is essential in predicting and explaining decision-making behavior in various economic and social contexts.