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Summary Economics 114 Unit 4 and 5 CA$5.56
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  2.  
  3. Stellenbosch University (SUN)
  4.  
  5. Economics 114

Summary

Summary Economics 114 Unit 4 and 5
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  • Course
  • Economics 114
  • Institution
  • Stellenbosch University (SUN)
  • Book
  • The Economy

Digitally summarized economics notes for economics 114. * Please note that if the display example seems smaller than A4, the downloaded version will not be like this - it will be full-sized.

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  • No
  • Units 4 and 5
  • June 1, 2022
  • 11
  • 2021/2022
  • Summary

Subjects

  • economics 114
  • economics summaries
  • ecos 114
  • economics unit 4
  • economics unit 5
  • economics 114 unit 4
  • economics 114 summaries
  • ecos 114 summaries

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UNIT 4: SOCIAL INTERACTIONS
and of than effect
Decisions
preferences more 1
person .
modelling the constraining
on behaviour of other people 's anticipated actions .




L



The effects of self -
interest > social dilemmas

situations where self -
interested individuals take

that
✓ actions
independently ,
result in
socially
positive
suboptimal outcomes .




( Industrial
Revolution ) traffic climate change
e.
g. jams ,




>
when do for the
people not account


effect of their actions on others


Forms




Tradgedy of the Commons Free
riding

bears
common
property 1 resources one
person / party
are often over exploited all the costs, while

e.
g. overfishing everyone enjoys the benefits
in how interact
motives
people
•
self -
interest ✓

for others
• concern
resolving social dilemmas
for fairness
preference
•




•
social preferences : Altruism willingness to bear a cost in order to benefit another

•

Repetition harnesses reciprocal behaviour

•
Institutions punish bad behaviour (
government + communities )

, game theory
of how model social
Game theory is a
way modelling people interact
,
to interactions and explain

social dilemmas .




when does self interest-




Games models of promote wellbeing / lead
players strategic interactions
• '
are .




to undesirable results
•

strategic interaction :




when in a social interaction involving 2 or more
people ( players)
people are aware of how their actions
, ,




affect their own and others '
outcomes and vice versa .

,




strategy
•
:




an action that a player may take in a social interaction


the player is aware of the mutual dependence of that action 's outcome on themselves and others

•
Outcome :




from
the situation that results the combination of strategies by both players
A states the payoffs earned by each player for each possible outcome / combo of strategies
game
•
.




•

players :




in the
taking the actions
parties game
description of social interaction

the invisible hand game the prisoner 's dilemma

pursuing self -
interest produces highest payoff
Players payoffs in the dominant
strategy equilibrium are
•




•
Feasible strategies : action each
player can take lower for each player than if neither played the
,



Information dominant
strategy
•

.




for every lower values ]
Payoffs outcomes possible combination [ Players prefer
•
:




of actions

derives from predicted is the best feasible outcome
V
>
represent the utility each player •
outcome not .




row ,
column
each outcome


•
NO .
of outcomes = no .
strategies ✗ no .



players Reasons :




Equilibrium in the game •
self -
interest


the free
Best
response :
strategy that will give a
player
• -



riding
highest payoff given ,
the strategies other players select

Dominant strategy strategy : that will give a
player the
of other do
highest payoff ,
irrespective what
players
I :| or
= .

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