Prisoner's Dilemma
Categories: Financial Theory
Old Mrs. Grouchetti’s prized garden gnome—the one dressed as a Teletubby—has gone missing from her front yard, and she is livid. Who is responsible for this dastardly deed? We don’t know, but police currently have two suspects (Gladys and Phyllis) sequestered in two separate interrogation rooms downtown. They’ve let them know that the first one to talk is going to get a much lighter penalty than the other, and thus Gladys and Phyllis find themselves in what is known as the “prisoner’s dilemma,” a situation in which two parties, unable to communicate with one another, must decide whether to act in their own self-interest...or to cooperate with each other.
In the classic scenario, the best option for Gladys and Phyllis is to stick to their mutually-beneficial game plan: keep quiet and say nothing. If the fuzz can’t prove they stole the gnome, then neither of them can be convicted of the crime, and they’ll each just get a ticket for trespassing. But even though this option would be best for them collectively, there’s a strong impetus for each to act in her own self-interest. Like...if Gladys suddenly decides she’s had enough of this whole mess and tells the cops that Phyllis is the gnome thief, she’ll walk free…but Phyllis will be arrested and charged with burglary. And that’s not good for Phyllis.
Game theorists have spent decades trying to figure out how best to address the prisoner’s dilemmas that face us all on our journey through life. Because even if we’re not stealing hideous garden décor from little old ladies, chances are that we’ve still found ourselves in at least one situation where we’ve been tempted to act in our own self-interest even if it would be better for everyone if we didn’t.
The more often we as an individual or as a society are faced with a particular prisoner’s dilemma, the better able we supposedly are to act in a cooperative way that benefits everyone. Gladys and Phyllis are aware of this notion (this ain’t their first garden gnome rodeo), which is why they’ve opted to keep quiet, take the trespassing ticket, and escape from their own prisoner’s dilemma.
