Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge, but they have enough to convict both on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain – betray the other by testifying that the other committed the crime, or cooperate with the other by remaining silent. The possible outcomes are:
- If A and B betray each other, both of them serve two years in prison.
- If A betrays B, but B remains silent, A will be set free, and B will serve three years in prison (and vice versa).
- If A and B both remain silent, both will serve only one year in prison (on the lesser charge).
The prisoners cannot communicate and come up with an optimal strategy.
If A betrays, then it is in B’s best interest too to betray. B will end up serving two years instead of three if B remains silent. If A does not betray, then also it is in B’s best interest to betray. B will walk out scot-free by ratting out on A. Same line of thinking applies to A too.
If A and B think only of their self-interest, they end up betraying each other — A and B will spend two years in prison. Instead, if they cooperate by remaining silent, they get out in a year — cooperating results in a better outcome. Optimizing for their self-interest ends up harming them instead of helping.
Game theory refers to the above as prisoner’s dilemma. Game theory is the study of human cooperation and the incentives driving us to cooperate.
Prisoner’s dilemma in a nutshell models situations in which individuals selfishly act in their self-interest, thinking it will benefit them when, in reality, it ends up harming all including themselves.
If you keep your eyes open, you can see prisoner’s dilemma everywhere.
You see it on the roads every day. All are selfishly optimizing for themselves by not following traffic rules, thus leading to detrimental traffic conditions for all.
You see it in companies where individuals and teams selfishly optimize for their narrow goals, which ends up harming the company.
You see it in the treatment of public resources like buses, toilets, and parks. No one seems to care about the upkeep of shared public resources, whereas caring for these resources would lead to a better quality of life for all.
Use prisoner’s dilemma as a lens to understand why people do not collaborate even when collaboration would have resulted in a better outcome.
Prisoner’s dilemma gives us a model to think about:
- Cooperation between people who do not know each other.
- The incentives to cooperate when the benefit of collaboration is not apparent.
Show me the incentives, and I will show you the outcome.
– Charlie Munger
In the face of non-communication and unclear incentives to collaborate, what would have lead to A and B cooperating?
Imagine that the criminal community had a strict rule of never confessing to the police. Breaking this code meant certain death. In the presence of such a system, perhaps A and B would have remained silent, leading to implicit cooperation. The Italian mafia has such a code called Omertà.
Imagine that in the criminal community, confessing to the police meant that your reputation is tainted forever. You will never find work again. In the presence of such a convention, perhaps A and B would have remained silent, leading to implicit cooperation.
If A and B had to work together in the future on other projects, perhaps A and B would have remained silent, leading to implicit cooperation.
If A and B were the members of a cult that says betraying a fellow member leads to eternal damnation in the afterlife, perhaps A and B would have remained silent, leading to implicit cooperation.
Many of the social constructs like strong laws, fervor nationalism, religion, trust, reputation, and community are society’s answer to prisoner’s dilemma. We, humans, have collectively evolved these practices as a way to facilitate implicit cooperation, thus leading to a better quality of life.
Thinking through the lens of prisoner’s dilemma explains why:
Small teams are more successful than big ones.
Scrawny resource-starved startups trump multinational corporations with deep pockets.
Tightly knit small communities have a lower crime rate than big cities.
Small homogeneous nations are more successful than diverse big ones.
How do companies solve the problem of prisoner’s dilemma?
Organization values, emphasis on team building and bonding, rewards and recognition, processes, and rules are some of the obvious ones. Some companies create a religious cult-like atmosphere as an answer to the problem of prisoner’s dilemma.
Implicit collaboration between people is critical to the success of everything – teams, projects, companies, societies, and countries; use prisoner’s dilemma as a way to think and model this. Thinking in terms of prisoner’s dilemma helps us to devise constructs that incentivize collaboration.
This post is not a rigorous explanation of prisoner’s dilemma; I have taken poetic liberties with it. Wikipedia entry on prisoner’s dilemma has a thorough explanation; it is an engaging read too.
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