One of the most-famous game theories conceptualised all the way back in 1950s. Prisoners dilemma is a framework that elegantly shows when you pursues your own self-interest, the outcome is worse than if you were to co-operate. However, reality has it that people often opt for the choice that they believe benefits them the most (as any rational person would do). However, this comes at the high risk of disbenefiting everyone involved. Including yourself!
How does it work?
Let’s assume two suspects have been apprehended for a crime. The police are interrogating them in separate rooms with no means of communicating with each other. The prosecutor presents them with the following choices:
(A) If you confess and agree to testify against the other suspect, who does not confess, your charges will be dropped and you will go free.
(B) If you do not confess but the other suspect does, you will be convicted to maximum sentence of three years.
(C) If both of you confess, you will both be sentenced to 2 year in prison.
(D) If neither of you confesses, you will both be charged with misdemeanours and will be sentenced to 1 year in prison.
📌 Clearly, the best ‘selfish’ option is for you to betray the other person in hopes of going free (Choice A). Can you trust the other suspect to not do the same?
📌 The best decision ‘globally’ rather than ‘selfishly’ is for you to both cooperate and stay silent (Choice D). The problem is that this highly depends on trust. Can you make sure they won’t rattle you out instead (Choice A)?
Applications to real-world
The theory is studied in numerous fields in the real-world, from economics to political sciences to biology and sociology.
🍎 A classic example of the prisoners dilemma is seen when two competitors are battling it out for market position. For example, when Apple was positioning itself in the phone market, they quickly became known for their aggressive pricing at cost of thin revenue margins (Choice A). Forcing competition to either lower their prices or quickly lose market share.
😷 During COVID-19 we saw how stockpiling led to national shortages due to people opting for the selfish choice (Choice A).
📈 In the GME short squeezes frenzy, we contrarily saw how thousands of people on r/wallstreetbets orderlessly collaborated together to hold their position against big Wall Street hedge funds (Choice D).
What other applications can you think of and how would you go about deciding?
See how we implemented prisoners dilemma in few lines of code during Netsci2022 in Porto https://twitter.com/raphtory/status/1492188036528017415