A key assumption in economics is rationality, which can be deduced as preference maximisation. In economic settings such as the market, preferences are by extension motivated by self-interest and are evidently selfish. However, when individuals begin to engage in strategic interactions amongst each other, wherein their individual payoffs are also dependent on the multiple players they are dealing with, some non-selfish behaviour might feature. For example employees may choose to work extra hours for their employers even when not compensated with any monetary benefits.
Non-selfishness here is not the absence of any personal motivations but the willingness to bear a cost on oneself in order to help another person. Such a preference is categorised as 'altruistic.' The motivations behind such preferences may not be entirely selfless. Individuals may be motivated by long-term self-interests, social obligations, or may even by the fact that most of their peers possess such attributes of generosity. In behavioural economics, "a branch of economics that seeks to understand the motivations and reasons behind individual decisions," Altruism can be classified into pure altruism, reciprocal altruism and more on the basis of these very intentions.
Regardless, altruism plays an important role in fostering long-term cooperation in a society. It has been observed that if individuals care sufficiently about the harm that they inflict on others, they can escape being in a situation of sub-optimality, known as the prisoner’s dilemma. Altruistic preferences among players can also help reduce the frequency of free-riders in a strategic interaction. This can be understood using the example of a strategic interaction between 2 friends, X and Y, who want to divide a pizza among themselves. If X proposes a proportion of division to which Y doesn't agree, the pizza is given to some third party. Let us assume that X proposes keeping 70% of the pizza for himself and giving 30% to Y. If Y accepts this offer, X would be free-riding on/benefitting from Y's loss. Thus Y might not accept this offer to punish X for not making a fair offer of 50-50. Here the punishment is a form of altruism because it costs Y 30% of the pizza to help deter free-riding behaviour that is detrimental to the overall well-being of the society.
Rationality in the traditional sense of self-interested utility maximisation is useful to understand basic consumer patterns. However, understanding altruism is essential to predict how individuals might behave in strategic interactions and the subsequent outcomes better.
Gaurika Bhanot
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