Let's say Mr. Blue, and Ms. Red have each been arrested for some minor crime.
The police think they committed a more serious crime but they don't have enough evidence
to convict them.
They need a confession.
They take them and put them in separate rooms so they can't talk, and play a little game.
To try to force a confession the police give them each a choice.
Admit your partner committed the crime, and you will go free.
We'll pardon you for the minor crime but your partner will have to spend 3 years in prison.
If you stay silent and your partner lets us know that you were the one who really did
it then you're going to have to go away for 3 years.
They know that the police don't have any evidence and if they both stay silent then they will
only go to prison for 1 year each for the minor crime.
If they both betray each other then they'll both go to prison for 2 years each.
OK, each partner can do 1 of 2 things.
Stay Silent, or Betray.
Staying silent would be cooperating and betraying would be defecting.
If they both stay silent, they each spend a year in prison.
If one betrays and the other stays silent, then the betrayer goes free and the silent
spends 3 years in prison.
If they both betray then it's 2 years each.
So what are they going to do?
Well they should cooperate.
That's the best option for the group, if we add the total number of years in prison.
But let's take it from Red's perspective.
If she thinks blue is going to stay silent, then she should betray so she can go free.
Going free is better than a year in prison.
If she thinks he's going to betray her then she should definitely betray, 2 years in jail
is better than 3 and being made a fool of.
Blue is in the exact same situation and will think the exact same thing, he should betray
if she stays silent and he should betray if she betrays.
They should have both cooperated, but from an individual stand point they noticed they
could always gain by defecting.
If they have no control over what the other person is going to do.
So they'll both defect to try to better their own situation.
But come away not only hurting the group, but themselves.
Individually they're worse off than if they both cooperated.
This situation is pretty made up, but it has some real world analogues.
A common example is with marketing . Let's say 2 cigarette companies, Red Strikes,
and Smooth blue, are deciding how much money they should spend on advertising.
Since the product they each make is identical to one another, advertising has a huge impact
on sales.
For simplicity let's say their choices are: to advertise a bunch, or not advertise at
all.
And there's just 100 people in this society and they all smoke.
If both don't advertise, then just by random chance picking cigarette boxes, 50 people
buy Red Strikes and 50 people buy Smooth blue.
At $2 a pack they each make $100.
Let's say advertising costs $30.
If one person advertises and the other does not, then 80 people will buy the cigarettes
from the ads and 20 people buy the other ones.
The advertiser makes $160 minus $30 for ads, and comes away with $130.
The non advertiser didn't spend money, but only made $40.
If they both advertise, again half will buy Red Strikes, and half will buy Smooth blue.
But since they both spent $30 on advertising, they only come away with only $70 each.
Same deal, both people cooperating and not advertising is the most preferable situation,
but both company can see that advertising will always make them more money.
But unlike the prisoner's in jail, these companies can talk and try to influence each other.
From here Blue would be better off if Red didn't advertise.
Red wouldn't go for that because that would be worse for them.
Blue could try to convince Red that they would both not advertise, the only other situation
where they're both better off.
But without any real obligation to each other, there's nothing that's stopping them from
trying to advertise to gain more of the market anyway.
If you think your opponent's going to not advertise, you're better off advertising.
Although we're still making assumptions to make this situation work too.
With this model we're assuming they only play once.
The game changes when the players have a chance to build a relationship and work together
to get more gains over time, or punish each other by not cooperating.
Also to make the model work we have to make up rules for the players.
Assume they're basically computer programs with predictable actions.
These guys are creepier than they were in my head.
They were supposed to be cute.
For the prisoner's dilemma and other similar models, we're assuming they are Rational Agents.
A rational agent is a hypothetical person that will always pick the option that they
predict will work out best for them.
They're not really thinking about the gains of someone else.
Seems selfish but it something that real people will generally do too.
People always want what's best for themselves and we don't like to made a fool of.
But if you put real people in the prisoner's dilemma, people don't always defect like the
model predicts.
In one study, 40 people playing prisoner's dilemma games, through a computer, without
ever meeting or talking, only playing each opponent once, these are one off games, using
a payoff matrix that looks like this, cooperated an averaged 22% of the time.
These people never cooperated.
These are people always cooperated.
These guys cooperated on half of their games and everyone else is in between.
This is a lot of cooperation coming from a model that predicts no cooperation.
The largest group did act like rational agents, but most people tried to cooperate at least
once.
It's because there's more to real people.
We are social creatures and even in a one off scenario with no guarantees and obligations
and no chance to build a relationship, we're still thinking about how the group might decide.
We're actually thinking from the perspective of the group, and making an optimistic decision.
Cooperating an average of 20% of the time might not seem very optimistic, but remember
this is with absolutely no communication or obligations.
Anyways, that's not really the point.
Using the rational agent is still useful.
The model is just trying to point out the dilemma of certain specific situation where
people actually hurting themselves when counter-intuitively, they're only thinking about themselves...
and that's why we're modelling using the cold robotic sociopaths.