Prisoner’s Dilemma: To Cheat, or not to Cheat Part 4 of 6

In the last post I talked about what goes through Suspect #1’s mind as he sites in his jail cell. He would arrive at the conclusion that cooperating with the cops is the best move. Meanwhile, his partner, Suspect #2, is thinking exactly the same thing to himself. So they both cooperate, and each gets a medium sentence.

The reason that Prisoner’s Dilemma fascinates economists so much, and why it’s so important in military and corporate strategy analysis, is that its outcome depends on what each player thinks the other will do. One screws the other over for fear of being screwed, so they’re both worse off in the end. It’s like a total self-fulfilling prophecy.

What’s interesting about this theory is that if the two suspects had just trusted each other, both would have gotten off scot free. This reminds me of a quote from George Orwell’s novel 1984: “Under the spreading chestnut tree, I sold you and you sold me.” It’s very sad.

But in this game’s simplest form, being loyal is not considered a stable outcome, as each party will be tempted to protect themselves from being taken advantage of. The theory says that in this case, betrayal is actually the sane, logical and rational thing to do (in economics, self-serving is considered a rational thing to do). The “I sold you, you sold me” result is called an “equilibrium” - the ultimate, stable choice for a rational human being.

(continued in my next post...)