I think the reason situations of problem 2 arise is because of misaligned incentives. When you care more about pleasing some other party, the best action is not necessarily the one that does the most good, but the one that best pleases the other person.
The cost incurred from doing so is then payed by either you (i.e. I pay the price in choosing a restaurant I hate) or society (in the factory example, the water is poisoned because of your choice)
I think the reason situations of problem 2 arise is because of misaligned incentives. When you care more about pleasing some other party, the best action is not necessarily the one that does the most good, but the one that best pleases the other person.
The cost incurred from doing so is then payed by either you (i.e. I pay the price in choosing a restaurant I hate) or society (in the factory example, the water is poisoned because of your choice)