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What Is the Prisoner’s Dilemma?

Possible Prisoner’s Dilemma Outcomes
Results Henry cooperates Henry’s Flaws
Elizabeth cooperates (1.1) (5.0)
Elizabeth’s Flaws (0.5) (3.3)
Penalties for (Elizabeth, Henry)

In this case, each thief always has an incentive to defect, regardless of the other’s choice. From Elizabeth’s perspective, if Henry remains silent, then Elizabeth can either cooperate with Henry and serve a year in prison, or defect and be free. Obviously, she better betray Henry then. On the other hand, if Henry defaults and testifies against Elizabeth, then his choice becomes either to remain silent and do five years, or to speak out and do three years in prison. Again, obviously, she would rather do the three years than the five.

Either way, whether Henry cooperates with Elizabeth or defaults to the prosecution, Elizabeth will be better off if she defaults and testifies. Now, since Henry faces the same set of choices, it will also always be best to defect.

The prisoner’s dilemma paradox is that the two thieves can minimize the total length of imprisonment they will both serve only if they both cooperate and remain silent (two years in total), but the incentives which they each face separately will always drive them each to defect and end up doing the maximum total prison sentence between them two of six years in total.

The prisoner’s dilemma is frequently used in economy or trade situations to explain why individual incentives might lead actors to choose a suboptimal outcome.

Examples of the prisoner’s dilemma

Economics is replete with examples of prisoner’s dilemmas that can have beneficial or detrimental outcomes for the economy and society as a whole. The common thread is this: a situation where the incentives each individual decision maker faces would cause them to each behave in a way that makes them all collectively worse off, while individually avoiding choices that would make them all collectively better off. if everyone could. sort of choose cooperatively.

One such example is the tragedy of the commons. It may be in the collective interest to conserve and reinvest in the propagation of a common pool of natural resources so that they can continue to consume it, but each individual always has an incentive to instead consume as much as possible as quickly as possible. , which then exhausts the resource. Finding a way to cooperate would clearly improve the situation for everyone here.

On the other hand, the behavior of cartels can also be considered a prisoner’s dilemma. All members of a cartel can enrich themselves collectively by limiting production to keep the price each receives high enough to capture economic rents from consumers, but each cartel member individually has an incentive to deceive the cartel and increase production to also capture rents away from other cartel members. In terms of the welfare of the whole society in which the cartel operates, this is an example of how individual incentives can sometimes improve the situation of society as a whole.

Escape the prisoner’s dilemma

Over time, people have developed a variety of solutions to prisoner’s dilemmas in order to overcome individual incentives for the common good.

First, in the real world, most economic and human interactions repeat themselves more than once. A real prisoner’s dilemma is usually only played once or is classified as a iterated prisoner’s dilemma. In an iterated prisoner’s dilemma, players can choose strategies that reward cooperation or punish defection over time. By repeatedly interacting with the same individuals, we can even deliberately move from a one-time prisoner’s dilemma to a repeated prisoner’s dilemma.

Second, people have developed formal institutional strategies to alter the incentives that individual decision makers face. Collective action to enforce cooperative behavior through reputation, rules, laws, democratic or other collective decision-making procedures and explicit social punishment for defections turns the dilemmas of many prisoners into cooperative outcomes more beneficial to the community.

Finally, some people and groups of people have developed psychological and behavioral biases over time, such as greater trust in each other, long-term future orientation in repeated interactions, and inclinations toward reciprocity. positive reciprocity of cooperative behavior or the negative reciprocity of failing behaviors. These tendencies can evolve through a kind of natural selection within a company over time or the selection of groups in different competing companies. Indeed, they lead groups of individuals to “irrationally” choose the outcomes that are in fact the most beneficial for everyone together.

Together, these three factors (repeated prisoner’s dilemmas, formal institutions that resolve prisoner’s dilemmas, and behavioral biases that undermine “rational” individual choice in the face of prisoner’s dilemmas) help resolve the many prisoner’s dilemmas we would be all faced differently.

In the iterative prisoner’s dilemma, it is possible for both players to design a strategy that punishes betrayal and rewards cooperation. There “tit for tatwas determined to be the optimal way to optimize a prisoner’s dilemma. Tit for tat was introduced by Anatol Rapoport, who developed a strategy in which each participant in a repeated prisoner’s dilemma follows a plan of action consistent with their opponent’s previous turn, e.g., if provoked, a player then responds with retaliation, if not provoked, the player cooperates.

What is the likely outcome of a prisoner’s dilemma?

The likely outcome of the prisoner’s dilemma is that both players default (i.e., behave selfishly), leading to suboptimal outcomes for both. It is also the Nash equilibrium, a decision-making theorem in game theory that states that a player can achieve a desired outcome by not deviating from their initial strategy. The Nash equilibrium in this example is that both players betray each other, even if mutual cooperation leads to a better outcome for both players; however, if one prisoner chooses mutual cooperation and the other does not, one of the prisoners’ outcome is worse.

What are the ways to deal with the prisoner’s dilemma?

Solutions to prisoner’s dilemmas focus on overcoming individual incentives for the common good. In the real world, most economic and human interactions repeat themselves more than once. This allows parties to choose strategies that reward cooperation or punish defection over time.

Another solution relies on the development of formal institutional strategies to modify the incentives that individual decision-makers face. Finally, behavioral biases will likely develop over time, undermining “rational” individual choice in inmate dilemmas and leading groups of individuals to “irrationally” choose outcomes that are in fact most beneficial to all together.

Can the prisoner’s dilemma be useful to society?

Prisoner’s dilemma problems can sometimes improve the situation of society as a whole. A good example is the behavior of an oil cartel. All cartel members can collectively enrich themselves by limiting production to keep the price of oil at a level where each maximizes revenue received from consumers, but each cartel member individually has an incentive to deceive the cartel and increase production to also capture revenue away from other cartel members. The end result is not the optimum outcome desired by the cartel, but rather one that benefits the consumer in terms of lower oil prices.

What is the tragedy of the commons?

The tragedy of the commons is a theoretical problem in economics that proposes that each individual has an incentive to consume a resource, but at the expense of all other individuals, with no way to exclude anyone from consumption. Generally, the resource of interest is easily accessible to all individuals without barriers (i.e. the “commons”). This hypothetically leads to overconsumption and ultimately to the depletion of the common resource, to the detriment of all. Basically, it highlights the concept of individuals neglecting the welfare of society in pursuit of personal gain. Its accuracy and application are debated.

The essential

The prisoner’s dilemma is a well-known parable of the difficulty of solving collective action problems. By acting in their own interests, the metaphorical prisoners end up with a greater sentence than they would face if they had worked together. However, when the experience is repeated over the long term, it is possible for the actors to imagine incentives for cooperation.

Corrigendum—June 30, 2022: The prisoner’s dilemma example has been modified to demonstrate how following individual interests can lead to the worst possible outcome.

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