The prisoners’ dilemma is the best-known game of strategy in social science. It
The prisoners’ dilemma is the best-known game of strategy in social science. It helps us understand what governs the balance between cooperation and competition in business, in politics, and in social settings.
In the traditional version of the game, the police have arrested two suspects and are interrogating them in separate rooms. Each can either confess, thereby implicating the other, or keep silent. No matter what the other suspect does, each can improve his own position by confessing. If the other confesses, then one had better do the same to avoid the especially harsh sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the favorable treatment accorded a state’s witness by confessing. Thus, confession is the dominant strategy (see game theory) for each. But when both confess, the outcome is worse for both than when both keep silent. The concept of the prisoners’ dilemma was developed by RAND Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker, a Princeton mathematician.
The prisoners’ dilemma has applications to economics and business. Consider two firms, say Coca-Cola and Pepsi, selling similar products. Each must decide on a pricing strategy. They best exploit their joint market power when both charge a high price; each makes a profit of ten million dollars per month. If one sets a competitive low price, it wins a lot of customers away from the rival. Suppose its profit rises to twelve million dollars, and that of the rival falls to seven million. If both set low prices, the profit of each is nine million dollars. Here, the low-price strategy is akin to the prisoner’s confession, and the high-price akin to keeping silent. Call the former cheating, and the latter cooperation. Then cheating is each firm’s dominant strategy, but the result when both “cheat” is worse for each than that of both cooperating.
Arms races between superpowers or local rival nations offer another important example of the dilemma. Yet the dominant strategy for each is to arm itself heavily.
On a superficial level the prisoners’ dilemma appears to run counter to Adam Smith’s idea of the invisible hand. When each person in the game pursues his private interest, he does not promote the collective interest of the group. But often a group’s cooperation is not in the interests of society as a whole. Collusion to keep prices high, for example, is not in society’s interest because the cost to consumers from collusion is generally more than the increased profit of the firms. Therefore companies that pursue their own self-interest by cheating on collusive agreements often help the rest of society. Similarly, cooperation among prisoners under interrogation makes convictions more difficult for the police to obtain. One must understand the mechanism of cooperation before one can either promote or defeat it in the pursuit of larger policy interests.
Can “prisoners” extricate themselves from the dile