Question

According to BFH, are pro-social / other-regarding preferences “irrational”? Explain.

In your own words, what is the distinction between “preferences” and “beliefs” according to BFH?

Answer 1

Pro-social behaviour is human tendency or behaviour which is for the welfare of the society as a whole which is motivated by empathy or concern for the welfare of society. Pro-social preferences among individuals lead to major cooperation rather than personal gains. The domain of preferences include pro-social preferences in the rational choice theory in order to include the utility of others along with the assumption that people are rational so that relative payoffs are determined. The results show that the level of cooperation between individuals is irrationally sensitive to the parameters which donot define the rational outcomes. However, it might be rational to act altrustically if the gains from social preferences are higher than individualistic behaviour.