Member-only story
Using Game Theory to Think More Critically
My brother and I are about the same age and when we were younger, we often got in trouble together. We weren’t delinquents. I’m talking about kid-trouble like running in the house when we were told not to and we bumped into something and broke it. When our parents asked what happened we would never tell on each other. We never agreed beforehand that we weren’t going to tell on each other; it’s just something we somehow agreed not to do. In retrospect, I think we subconsciously reasoned that if we were both at fault then the punishment we would receive would be far less severe. On a few occasions, we weren’t punished at all because our parents either didn’t know who to pin the blame on or they didn’t have the energy to deal with it (it was probably the latter). I’m not sure if this dynamic exists today amongst siblings, but this was our unwritten, but very real “kid-contract” for avoiding punishment. And it worked.
Unknowingly, my brother and I were engaged in a very common game of decision analysis called prisoner’s dilemma. By definition, “prisoner’s dilemma is a paradox in decision analysis in which two individuals acting in in their own self-interests do not produce the optimal outcome (1).” In more critical applications, the engaged individuals could be a group of people, businesses, or even countries. In the case of my brother and I, we knew in advance that we were not going to tell on each other. However, oftentimes each party involved does not know how the other will respond.
The most commonly told example to describe prisoner’s dilemma is the tale of the two bank robbers. There are two thieves who are apprehended by police after robbing a bank together. They are taken to the police station and separately interrogated. Neither thief trusts the other, so there is a level of uncertainty that each thief feels as each enters their interrogation room. Here’s what the thieves do know: If neither admit to the crime, they’ll each serve one year in prison. If one admits to the crime and the other doesn’t, then one goes free and other gets three years in prison. Lastly, if they both admit to the crime, they each get two years in prison. Clearly, the optimal situation for both of them is to not admit to the crime, but neither of them know for certain how the other will respond. In the absence of uncertainty, it is better for each…
