Business Ethics Chapter 3 Question & Answer

Self-interest is still an important consideration in ethical decision-making, but other ethical considerations often outweigh it.

Societies can create cooperation between egoists by coercively enforcing the rules of the game, rules such as laws regarding property and contracts. However, if people internalize the rules of the game as ethical obligations, then they can achieve cooperation more efficiently.

Most of the wealth of modern economies arises from people cooperating with one another and organizing production according to principles of specialization and division of labour.

In the Prisoner’s Dilemma Game, both players have dominant strategies based on self-interest that, when played, result in an outcome with payoffs smaller than if each had played another strategy based on cooperative considerations. Achieving Pareto efficiency requires constraining extreme egoism.

Ethical egoism is difficult to justify. The single-minded pursuit of self-interest, when others are doing the same, can often be self-defeating. For example, two highly rational maximizers of self-interest will do less well playing the Centipede Game than will two average, trusting people who have the emotional makeup required for cooperation.

Psychological egoism is a basic assumption of economics, but behavioural economics experiments, such as the Ultimatum Game, suggest that it is not a good description of human nature.

Psychological egoism is the empirical theory that people always do act to maximize the satisfaction of their own interests. Ethical egoism is the ethical theory that people always ought to act to maximize the satisfaction of their own interests.