2. Imagine that you would like to know your friend's outcome-based social preferences. You ask her...

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2. Imagine that you would like to know your friend's outcome-based social preferences. You ask her to make choices between divisions of money. Here is what she chooses: (i) She chooses $4 for herself and $3 for you over $5 for herself and $1 for you. (ii) She chooses $3 for herself and $4 for you over $5 for herself and $9 for you. (iii) She chooses $7 for herself and $1 for you over $2 for herself and $2 for you. (a) Which of these three choices is consistent with your friend being purely altruistic? (b) Which of these three choices is consistent with your friend being purely selfish individualistic? (c) Which of these three choices is consistent with your friend maximizing group welfare? (d) Which of these three choices is consistent with your friend being extremely inequality averse? (e) What if your friend is only moderately inequality averse? Could that explain all three choices? (f) If your answer to (e) is yes, identify the range of a and values in the Fehr-Schmidt model that would be consistent with your friend's choices. If your answer to (e) is no, explain how some of the choices lead to contradictory a or values. 2. Imagine that you would like to know your friend's outcome-based social preferences. You ask her to make choices between divisions of money. Here is what she chooses: (i) She chooses $4 for herself and $3 for you over $5 for herself and $1 for you. (ii) She chooses $3 for herself and $4 for you over $5 for herself and $9 for you. (iii) She chooses $7 for herself and $1 for you over $2 for herself and $2 for you. (a) Which of these three choices is consistent with your friend being purely altruistic? (b) Which of these three choices is consistent with your friend being purely selfish individualistic? (c) Which of these three choices is consistent with your friend maximizing group welfare? (d) Which of these three choices is consistent with your friend being extremely inequality averse? (e) What if your friend is only moderately inequality averse? Could that explain all three choices? (f) If your answer to (e) is yes, identify the range of a and values in the Fehr-Schmidt model that would be consistent with your friend's choices. If your answer to (e) is no, explain how some of the choices lead to contradictory a or values.

Answer rating: 100% (QA)

ANSWER a The choice iii is consistent with your friend being purely altruistic This is because in this choice your friend chooses to give up 6 7 1 for ... View the full answer