Entry 1814, on 2016-10-05 at 12:29:25 (Rating 2, Politics)
I have already discussed the prisoner's dilemma in a couple of previous posts but I want to re-examine its implications here because it's just really cool, and (predictably) I have been listening to another podcast which mentioned it in relation to game theory recently.
The prisoner's dilemma is a sort of thought experiment in philosophy or game theory. Here's a statement of the dilemma from Wikipedia...
Two men are arrested, but the police do not possess enough information for a conviction. Following the separation of the two men, the police offer both a similar deal - if one testifies against his partner (defects/betrays), and the other remains silent (cooperates/assists), the betrayer goes free and the cooperator receives the full one-year sentence. If both remain silent, both are sentenced to only one month in jail for a minor charge. If each "rats out" the other, each receives a three-month sentence. Each prisoner must choose either to betray or remain silent; the decision of each is kept quiet. What should they do?
Let's look at the options here. I'll call the two prisoners Al and Bob. If Al betrays Bob but Bob keeps quite then Al goes free and Bob gets 1 year. The same happens in reverse. If both Al and Bob keep silent then they both get 1 month. If each betrays the other they both get 3 months.
Now look at it from Al's perspective. If Bob will betray him he is better to also betray Bob because he will get 3 months instead of a year. If Bob won't betray him he is still better to betray Bob because he goes free instead of getting 1 month. But Bob is also thinking this way, meaning that the inevitable outcome is that both get 3 months.
The above assumes each is thinking independently (which must happen because the problem above specifies that "the decision of each is kept quiet"). What would happen if they could cooperate or if both knew the other's intention before they decided? Clearly in that case both would remain silent and get 1 month each.
Notice that each individual making the most rational decision does not result in the best outcome for either.
This isn't just a fun game because the original work on this was done in the US during the Cold War in relation to the best way to respond to the USSR's war efforts.
Now let's see how it might apply in real life. A recent controversy here in new Zealand involved management of fish by commercial fishing companies. We have a quota management system to prevent over-fishing and potential destruction of fish stocks, but surely if the fishing industry acted rationally that shouldn't be necessary, should it?
If we apply the principles of the prisoner's dilemma to this situation it is obvious why regulation is necessary...
Let's say there are two fishing companies operating in this particular area. I will call them A and B. They both know they can either catch a sustainable share of the fish and ensure the long term survival of the fishery, or they can just go out and catch as much as they can.
Let's look at this from A's perspective. If B cheats then A is better to cheat as well because the fish will run out but at least A would have made a lot of money before that happens. If B doesn't cheat then A is still better to cheat because the number of fish will be reduced but A will make a lot of money at the expense of B.
But again, if they both cooperate then both can make a moderate amount while ensuring that the fish survive indefinitely which ensures both company's survival.
When you start thinking this way examples are everywhere, especially where multiple entities are competing over limited resources (climate change mitigation is an obvious example). In other words, in exactly the situations where conventional economic theory thinks that free competition is the best solution. Clearly it is wrong.
So in theory truly free competition as espoused by neo-liberal economics will never work. It just can't. Is the usual alternative - government regulation - any better? Well, in theory it is, but only if we assume that the government acts rationally and tries to optimise the rules for the long-term benefit for the majority.
But in too many cases the government simply acts as another participant in the prisoner's dilemma scenario. It makes short-term, self-serving decisions which don't give an optimal result for either society or for even itself.
There is one advantage that democratic governments have though. They are ultimately given power through a majority vote which, theoretically at least, represents the thoughts of the people. Private companies don't have this restriction.
But there is one last factor I should mention here. The prisoner's dilemma changes completely when the participants know what the others are doing. If all the participants cooperate and act rationally then the best outcome always results. So the key to getting the best outcome seems to be total openness and complete participation by all affected parties.
That sort of sounds like a democratic political model with a Keynesian style economy (I would advocate for a greater degree of control than Keynes did). But it should be the model we always hear about in theory, not the imperfect version we see in real life.
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