Exam 18: Social Economics

Scenario: Beth and Mary work as designers for a leading footwear manufacturer. Together, they came up with a new design that was successful from the day it was launched in the market. Impressed with their performance, their boss wants to reward them. He hands over $5,000 to Beth and asks her to offer Mary any amount she wants. If Mary accepts the offer, the money will be split in the decided proportion. However, if Mary rejects the offer, both of them will forgo the chance to be rewarded. -Refer to the scenario above.If Mary prefers fairness to money,________.

Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose. -Refer to the scenario above.This is an example of ________.

Neil and Derek are brothers who are very fond of watching television.They share a television but watch different shows.Every evening,after coming home from school,they argue over who will watch television and for how long.Irritated by their fighting,their parents asked Neil to decide how long each of them would watch television.They also told him that if the brothers failed to reach an agreement,they would not let either of them watch television. a)How should Neil make his decision? b)What will be the outcome if Derek prefers fairness over watching television?

Scenario: Two colleagues-Mathew and Peter-have successfully completed a project, and their employer has decided to reward them in a unique way. Each of them is taken to a separate room and asked to choose whether the other colleague is a good teammate or a bad teammate. They are told that if both of them choose "bad," they will not get any reward. If both of them choose "good," they will get $5,000 each. If one chooses "good" while the other chooses "bad," the one who chooses "bad" will get $10,000 and the one who chooses "good" will not get anything. -Refer to the scenario above.In equilibrium,________.

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. The winning amount was handed over by the organizers to their professor, who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. -Refer to the scenario above.If Joseph prefers more money to less,________.

An organic food manufacturing company has launched a campaign against the consumption of inorganic food.This is an example of ________.

Scenario: Jack and Jill are siblings. Jack's father asked him how much money he would offer Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. -Refer to the scenario above.If Jill values fairness,________.

You are on a vacation in a foreign country.Because it is your first visit to the country,you do not know much about the tourist spots.Therefore,you decide to ask the manager of the hotel about popular tourist places.He tells you that there is a waterfall and a beautiful park close to the hotel that you can visit.You are wondering which place to go to when you overhear some of the tourists planning a trek to one of the falls.You decide to join them.This is an example of ________.

Why do individuals decide to herd?

During the global financial crisis of 2008,as more people started selling their houses in fear of falling house prices,house prices fell further.This is an example of ________.

Jane donates time and money to charity because she values helping others.This is an example of ________.

Two individuals are playing a trust game that has three rounds.In the first two rounds of the game,they have accumulated $1,000 as a team.In the third round,Player 1 is blindfolded and asked to decide whether he would let Player 2 guide him to a particular destination or opt out of the game.If he lets Player 2 guide him,Player 2 can either guide him to the correct destination or take him elsewhere.If she leads him to the correct destination,each of them will get half of the accumulated money.However,if Player 2 leads him astray,Player 2 will get 75 percent of the accumulated money and Player 1 will get 25 percent.If Player 1 opts out of the game,he will get 30 percent of the accumulated money and Player 2 will get 20 percent. a)What is the equilibrium outcome in this case? b)How will the equilibrium change if the players can impose a guilt penalty of 60 percent of the accumulated money on the defecting player?

Scenario: Robert and Alice are participating in a reality show on television. Robert is offered $500 and is told that he can keep the money as long as he shares some of it with Alice. Robert can offer Alice as much or as little as he likes, but if Alice rejects his offer, neither of them will get to keep any money. -Refer to the scenario above.If Alice values fairness,________.

Scenario: You walk onto a used car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality, but you value a lemon at $0. You are now wondering whether you should trust the car dealer when it comes to the quality of his cars. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, he will not earn any money and you will not be able to buy a car. If you trust him and he cooperates, both of you will gain, because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000, while you will not derive any satisfaction. -Refer to the scenario above.You should use ________ to arrive at a decision.

What role does information cascade play in job interviews?

Scenario: Tom and Harry are participating in a game in which the participants are divided into groups of two. Tom and Harry have been put in the same group. In each round of the game, Tom will be given an item. Tom can either give it to Harry or pass it on to the next team. If he decides to pass it on to the next team, neither of them will get the prize. If he gives it to Harry, Harry can either pass it on to the next team or sell it himself. If he passes it on to the next team, each of them will get $100. However, if he decides to sell it, he will get an amount higher than $100 and Tom will get nothing. -Refer to the scenario above.Which of the following will happen in equilibrium if Harry is known to be trustworthy?

George donates money to charity only when somebody he knows approaches him for such donations.This is an example of ________.

We often choose the school we attend on the basis of how popular it seems to be.Such behavior is an example of ________.

Phillip owns some stocks of a pharmaceutical company.Lately he has been anticipating that the company will go bankrupt.He decides to find out more about the company's financial condition before selling the stocks.However,he tends to read only the blogs of investors who are expecting the company to go bankrupt.He soon makes up his mind and sells the stock just before its price reaches an all-time high.Phillips's behavior is an example of ________ bias.

________ creates an informational equilibrium in which people trust the wisdom of others and ignore their own information.