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What are Social Preferences and Behavioral Game Theory?

Social preferences refer to how individuals consider the welfare of others when making decisions, often showing concern for fairness, reciprocity, and trust. Behavioral game theory examines how people make strategic decisions in social situations where the outcome depends not only on their own actions but also on the actions of others.

Key Concepts of Social Preferences & Behavioral Game Theory

  • Altruism & Reciprocity

    • 🤝 People are willing to sacrifice their own well-being to help others, expecting either immediate or future reciprocity.

    • Example: Helping a friend with their work, hoping they will return the favor in the future.

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  • Trust and Fairness

    • ⚖️ Individuals often seek fairness in transactions and interactions, trusting that others will also act fairly.

    • Example: In a negotiation, both sides might be willing to compromise to ensure a fair outcome.

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  • Game Theory

    • ♟️ A strategic framework where individuals make decisions based on their expectations of others’ behavior.

    • Example: In the Prisoner’s Dilemma, individuals must decide whether to cooperate or betray, considering what their counterpart might do.

How Do Social Preferences Affect Strategic Decisions?

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  • Step 1: Assess the situation and the players involved.

    • 🤝 For Altruism & Reciprocity: People consider how their actions affect others and expect cooperation or future rewards.

    • ⚖️ For Fairness & Trust: People value fair outcomes and trust others to behave similarly.

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  • Step 2: Use game theory to predict the behavior of others.

    • ♟️ Strategic decisions involve anticipating others' actions and adjusting accordingly.​

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  • Step 3: The outcome depends on the combined actions of all participants, creating either cooperation or competition.

Social Preferences & Behavioral Game Theory

Social Preferences

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  • Altruism & Reciprocity

    • 🤝 Sacrificing personal gain to help others, expecting reciprocity.

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  • Fairness & Trust

    • ⚖️ Ensuring fairness and trusting others to do the same.

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  • Game Theory

    • ♟️ Strategic decisions based on predicting others’ behavior.

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