ABSTRACT
You may recall from Chapter one my saying that homo economicus is both rational and sel¿ sh. Up until now we have primarily been questioning whether it makes sense to assume that people are as rational as homo economicus. Now it’s time to look at whether it makes sense to assume they are as sel¿ sh. That people behave as if sel¿ sh is one of the most basic assumptions in the standard economic model. The evidence suggests, however, that most people do care about others. Why else would millions of dollars be given to charity every year? Why else would someone feel envious of a work colleague earning a higher salary than them? If the utility of one person depends on the utility of another, then we say that there are social or interdependent preferences . In this chapter our task is to review the evidence for social preferences, look at how we can model them, and look at what consequences they can have.
