Game Show Game Theory

Dave Killion — April 24, 2012

Read enough about economics, and it’s just a matter of time before you learn about “The Prisoner’s Dilemma” –

“The prisoner’s dilemma is a canonical example of a game analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so… One of several examples (used is the) “closed bag exchange”:

“Two people meet and exchange closed bags, with the understanding that one of them contains money, and the other contains a purchase. Either player can choose to honor the deal by putting into his or her bag what he or she agreed, or he or she can defect by handing over an empty bag.”

If this is an exchange that will happen more than once, and the same two people are involved, honourable behaviour is the most rewarding. When it is done in groups that are permitted to communicate with each other, reputation encourages honourable behaviour. But if the exchange will happen only once, and there is no recourse against defectors, defection is the optimal choice. But are there circumstances where that tendency can be overcome? Watch and see –

Comments

Ashley Johnston says

I’ve been drifting toward libertarianism all of my life, but Robert Axelrod’s Evolution of Cooperation planted an early seed. Especially the section on Live and Let Live during WWI. The book expounds on the iterated prisoner’s dilemma. Axelrod is currently a member of the CFR.

— April 24, 2012

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