Question

For this experiment you have been randomly assigned to a group consisting of you and one other person. You do not know now, nor will you ever know, who this other person is. For this experiment all you have to do is distribute your 10 points into two accounts. One account called KEEP and one account called GIVE. The GIVE account is a group account between you and your group member. For every point that you (or your group member) put in the GIVE account, I will add to it 50% more points and then redistribute these points evenly to you and your group member. The sum of the points you put in KEEP and GIVE must equal the total 10 points. Any points you put in the KEEP account are kept by you and are part of your score on this experiment. Your score on the experiment is the sum of the points from your KEEP account and any amount you get from the GIVE account. For example, suppose that two people are grouped together. Person A and Person B. If A designates 5 points in KEEP and 5 points in GIVE and person B designates 10 points to KEEP and 0 points to GIVE then each person’s experiment grade is calculated in this manner: Person A’s experiment grade = (A’s KEEP) + 1.5(Sum of the two GIVE accounts)/2 = 5 +(1.5)(0+5)/2= 5 + 3.75 = 8.75. Person A’s score then is 8.75 out of 10. Person B’s experiment grade = (B’s KEEP) + 1.5(Sum of the two GIVE accounts)/2 = 10 +(1.5)(0+5)/2 = 10 + 3.75. Person B’s score then is 13.75 out of 10. (you can think of any points over 10 as extra credit) In this module’s activity you were asked to make a decision about how to invest your resources (points). This activity is a classic strategic game where the good of the individual is at odds with the good for the group. These problems are pervasive in risk management. For example, a physician who is trained to treat diseases may be reluctant to discuss alternative treatments with a patient when the physician is sure that a specific treatment is the only truly viable treatment. Nonetheless, you have learned in this course that physicians (or an agent of the physician) must have this discussion and bow to the will of the patient even if, in the physician’s judgment, the patient chooses an alternative treatment which is likely to be superfluous. In this way, informed consent and patient education are nuisances to the physician but are very important to protect the group (maybe a hospital or surgical group) from liability. In light of recent events another example is warranted. Individuals may choose to not get vaccinated since they do not want to bear the risk of any possible adverse side-effects of a vaccine. This is perfectly reasonable to do so. The problem arises when large groups of people choose to not get vaccinated thus making the impact of the disease relatively larger than need be if everyone would choose to take a vaccine (remember our first cost-benefit experiment). This implies that individual’s rights to choose not to vaccinate are at odds with what is good for the group of individuals. These types of problems are common in risk management. Discussion:
(If you post your answers to each of the four questions below before the deadline, you will get the full ten points for the discussion. The questions do not need to be answered mathematically or with a calculation. If you feel the need to use mathematics to make a calculation, then you are free to do so but the questions are merely asking you for a number and how you arrived at that number. If you do not do any calculations to arrive at the number, just say how you arrived at the number. (There are no incorrect answers.) 1. In this activity how did you arrive at your decision on the keep-give split? 2. What is the best outcome of this situation for you? 3. What is the best outcome of this situation for the group? 4. Can you see any parallels with this game and how risk management strategies work? Explain.

Answer 1

1. I based my decision on allocating points to maximize my own score, while also considering the potential benefits of contributing to the group fund.

2. The best outcome for me would be allocating the minimum points required to the GIVE account, while putting the majority in the KEEP account. This would ensure I receive the most points for myself.

3. The best outcome for the group would be if both participants maximized their contributions to the GIVE account. This would create the largest group fund, resulting in the most redistributed points and highest average score.

4. There are parallels with risk management strategies. Individuals may act in their own self-interest, but a larger group benefit could be achieved if more participants contributed to "group" risk management strategies like vaccination, safety protocols, insurance policies, etc. However, some individuals may free ride on others' contributions while benefiting from the overall results. Incentivizing group participation can help align individual and group interests.