1. SES SECONDARY 3

2. 2 PERSPECTIVES: 1. CLASSICAL ECONOMISTS Stigler: “when self-interest and ethical values with wide verbal allegiances are in conflict, much of the time, most of the time in fact, self-interest theory… will win.” 2. BEHAVIORAL ECONOMISTS People are more complex with interests besides self-interest. Self-interest, while important, does not necessarily dominate.

3. Games we play Group projects  Free-riding Dating  Information manipulation Scoring  Prisoner’s dilemma & Collusion Buying on e-Bay  Auction Waking up  Commitment

4. Games businesses play Price wars  Prisoners‘ dilemma Market entry  Commitment Financial assets  Auctions OPEC output choice  Collusion and enforcement

5. GAMES Ultimatum Game Trust Game Game Theory (Prisoners’ Dilemma) Clear information on individual incentives is given.

6. THE ULTIMATUM GAME http://www.youtube.com/watch?v=xpkxLKV_3d0 An assumption that fairness will ensure that the offer is accepted.

7. THE TRUST GAME STAGE ONE The Boss decides to reward you. You may either pass nothing, or a portion of the endowment to your buddy-in-crime. You can then keep the remaining for yourself while the Boss triples the amount allocated to him.

8. THE TRUST GAME STAGE TWO Your buddy-in-crime now has in his hands triple the amount of money you apportioned for him. He may either pass nothing, or any portion back to you.

9. THE TRUST GAME The amount passed by you is said to capture trust. The amount returned by your buddy is said to capture trustworthiness. ‘‘A willingness to bet that another person will reciprocate a risky move (at a cost to themselves),’’ (Camerer, 2003, p. 85).

10. GAME THEORY https://www.khanacademy.org/economics-finance- domain/microeconomics/nash-equilibrium- tutorial/nash-eq-tutorial/v/prisoners-dilemma-and- nash-equilibrium

11. GAME THEORY Study of rational behavior in interactive or interdependent situations Payoffs for each player depend on actions of both While cooperation is collectively rational, defection is individually rational

12. What is involved? ULTIMATUM GAME  Fairness (under uncertainty) TRUST GAME  Reciprocity GAME THEORY  Trust (or Betrayal)