Back to: ECONOMICS, FINANCE, & ACCOUNTING
Prisoner’s Dilemma Definition
When two individuals trying to resolve an issue act in their own self-interests rather than aiming for an optimal outcome, and as a result end up worsening the situation instead of resolving it, it’s called the ‘Prisoner’s Dilemma’ paradox. Decision analysis of conflict resolution in the Prisoner’s Dilemma shows that each person was serving his/her own self-interest at the expense of the other person, leading to a poorer outcome for both parties. Cooperation and serving a common cause would have yielded better results.
A Little More on What is Prisoner’s Dilemma
To put it simply, when working in teams of two or more people, working towards the common good is the better option than choosing self serving actions and putting the self above the team.
Examples of Prisoner’s Dilemma
Consider the example of two thieves A and B suspected of robbery. They now have the option of entering a plea bargain to minimize their sentences. If A pleads guilty, it reduces his sentence to a two year stint in the cooler, same goes for B. If A pleads not guilty, then he could face criminal charges and a full sentence of 5 years if convicted, same goes for B. However, if A pleads not guilty but B pleads guilty, A could avoid the sentence altogether, while B goes to the behind the bars for the full sentence term. The converse also holds true in case of B.
In this scenario, if A and B were inclined to think as a team and aimed for the best outcome, they would both plead guilty, serve their minimum sentence together and get out after two years. But, when Prisoner’s Dilemma comes into play, both parties act in their own self-interest at the expense of the other. In this case, A is banking on B entering a guilty plea bargain so he can get away scot free, B is thinking along the same lines. Both enter a not guilty plea, end up getting convicted and serving the full sentence, thus bringing about the worst case scenario for not being able to think beyond self-serving interests.
When the Prisoner’s Dilemma plays out more than once, it’s called iterated Prisoner’s Dilemma. It is also a major reason for cooperation between parties with opposing views – so as to improve their common lot.
Brexit as the Real World Example of Prisoner’s Dilemma
Britain’s decision to quit the European Union in June 2016, has created the Prisoner’s Dilemma paradox for both parties. Negotiating it’s political and economic ties with the European Union as a non-member has resulted in impasses that have been impeding the leaving process. European Union is motivated to make an example of Britain to any other member nations thinking of quitting the Union. As such, it isn’t ready to give an inch where single market norms are concerned. Britain is similarly looking to reap the benefits of the union’s single market without having to incur the costs of staying with the union. Both parties are ignoring the benefits of being allies while they prioritise their own self-interests.
References for Prisoner’s Dilemma
Academic Research on the Prisoner’s Dilemma
Rational cooperation in the finitely repeated prisoners‘ dilemma, Kreps, D. M., Milgrom, P., Roberts, J., & Wilson, R. (1982). Rational cooperation in the finitely repeated prisoners’ dilemma. Journal of Economic theory, 27(2), 245-252. This paper studies the iterated Prisoner’s Dilemma and the different factors at play that lead to a measure of cooperation between players in successive iterations.
Bounded complexity justifies cooperation in the finitely repeated prisoners‘ dilemma, Neyman, A. (1985). Bounded complexity justifies cooperation in the finitely repeated prisoners’ dilemma. Economics letters, 19(3), 227-229. This letter studies the reasons people cooperate in a finite number of Prisoner’s Dilemma iterations.
Collective action as an agreeable n‐prisoners‘ dilemma, Hardin, R. (1971). Collective action as an agreeable n‐prisoners’ dilemma. Behavioral science, 16(5), 472-481. This paper studies Prisoner’s Dilemma in finite iterations under the constraints of the Mancur Olson’s analysis and presents its findings.
Coordination versus prisoners‘ dilemma: Implications for international cooperation and regimes, Snidal, D. (1985). Coordination versus prisoners’ dilemma: Implications for international cooperation and regimes. American Political Science Review, 79(4), 923-942. This paper applies the Prisoner’s Dilemma paradox to the study of international cooperation and influence.
Adam Smith and the prisoners‘ dilemma, Tullock, G. (1985). Adam Smith and the prisoners’ dilemma. The Quarterly Journal of Economics, 100, 1073-1081. This article analyses a matrix of Prisoners’ Dilemma with cooperating parties, and tests Adam Smith’s theory about the ‘Discipline of Continuous Dealings’.
Renegotiation-proof equilibria in repeated prisoners‘ dilemma, Van Damme, E. (1989). Renegotiation-proof equilibria in repeated prisoners’ dilemma. Journal of Economic theory, 47(1), 206-217. This paper examines the impact of renegotiation equilibria in iterations of Prisoners’ Dilemma.
The Prisoners‘ dilemma in the invisible hand: an analysis of intrafirm productivity, Leibenstein, H. (1982). The Prisoners’ dilemma in the invisible hand: an analysis of intrafirm productivity. The American Economic Review, 72(2), 92-97. This journal looks at the existence and impact of Prisoner’s Dilemma in the analysis of intrafirm productivity.
Cooperation and group size in the n-person prisoners‘ dilemma, Bonacich, P., Shure, G. H., Kahan, J. P., & Meeker, R. J. (1976). Cooperation and group size in the n-person prisoners’ dilemma. Journal of Conflict Resolution, 20(4), 687-706. This journal studies the cooperation and conflict of interest in Prisoners’ Dilemma when group dynamics are at play. This journal looks at the gameplay of Prisoner’s Dilemma in different group sizes.
Dynamic instabilities induced by asymmetric influence: prisoners‘ dilemma game in small-world networks, Kim, B. J., Trusina, A., Holme, P., Minnhagen, P., Chung, J. S., & Choi, M. Y. (2002). Dynamic instabilities induced by asymmetric influence: prisoners’ dilemma game in small-world networks. Physical Review E, 66(2), 021907. This journal examines the dynamics of Prisoner’s Dilemma in the scenario of small-world networks.
Beyond the Prisoners‘ Dilemma: Coordination, Game Theory, and Law, McAdams, R. H. (2008). Beyond the Prisoners’ Dilemma: Coordination, Game Theory, and Law. S. Cal. L. Rev., 82, 209. This paper focuses on the game play of Prisoner’s Dilemma in the world of legal scholarship.
An empirical approach to the prisoners‘ dilemma game, Lave, L. B. (1962). An empirical approach to the prisoners’ dilemma game. The Quarterly Journal of Economics, 424-436. This journal analyses Prisoner’s Dilemma with emphasis on empirical data.
Prisoners‘ dilemma as a game with incomplete information, Bolle, F., & Ockenfels, P. (1990). Prisoners’ dilemma as a game with incomplete information. Journal of Economic Psychology, 11(1), 69-84. This paper studies the psychology of Prisoner’s Dilemma in the absence of complete information.