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Prisoner’s dilemma: Difference between revisions
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**The buyer is in its original position (£0). | **The buyer is in its original position (£0). | ||
=== | ===Single round=== | ||
If you play this game in isolation the payoff is grim: | If you play this game in isolation — with someone you don’t know and whom you do not expect to meet again, the payoff is grim: those who cooperate will get reamed. Cooperation is a bad strategy. Your best interest is in defecting on the other guy, because ''his'' best interest is defecting on ''you''. | ||
This | This looks like a bad outcome for commerce. If the rational disposition is to weasel on a deal, how can we have any faith in the market? How, come to think of it, has any kind of market ever got off the ground? Why would anyone take on a sure fire losing bet? | ||
Because trust, faith and confidence changes everything. The single round prisoner’s dilemma stipulates there is ''no consequence'' on a bad actor for reneging. The defector is guaranteed to get away with it: these are the rules. | |||
But in real life, one-off interactions with strangers — counterparts whom you are guaranteed never to see again — are rare. Business is the process of cultivating relationships. Establishing trust. | |||
The game theorists found an easy way to replicate that concept of trust: run the same game again. Repeatedly. An indefinite amount of times. | |||
The same actors get to observe how each other act, and respond accordingly. If your counterpart defects, you have a means of retaliating: by defecting on the next game, or by refusing to play the game any more with that counterparty. | |||
Now, as well as the short-term payoff, there is a longer-term payoff, and it ''dwarfs'' the short term payoff. If I defect once, I earn £150. If I cooperate a thousand times, I earn £50,000. If I defect first time round, sure: I am £100 up, but at what cost: if my counterparty refuses to play with me again — and if she tells other players in the market — I will struggle to make much money. ''No one will trust me''. | |||
{{seealso}} | {{seealso}} | ||