You and your friend were captured by the police (Pardon me! for making you a criminal, I know you are innocent ). Both of you were put in a separate cell and barred from communicating with each other. The police didn't have enough evidence to put both of you into jail for a long period of time but have enough of them to give both of you a short sentence. The possible scenarios of the situation are:
Confession to a crime gives both of you a sentence of five years.
If one person remains silent and the other one confesses the crime, the one who confesses will be set free and the silent one will be put into jail for ten years.
Remaining silent gives both of you a sentence of one year.
What will you do in this condition?
The domain of game theory will be very handy in such situations. Let's understand the basics of game theory. It is the study of strategy and decision-making while interacting with other people. In games like Chess, Badminton, Poker, etc. there are clear winners as well as losers. In real-life scenarios, there are no clear winners or losers. The models of game theory are very helpful in making the optimal decisions that improve the quality of life. A serene life is an outcome of better decision-making.
Sometimes our life is affected by our decisions as well as by the decisions of other people. In those cases, decisions should be taken in such a way that no matter what the others choose, your decision will always move you towards the best case scenario. This point is known as the Nash Equilibrium named after the mathematician John Nash who discovered it. John Nash is the pioneer in game theory and made significant contributions in the field of game theory. According to Wikipedia, in a Nash Equilibrium, each player is assumed to know the equilibrium strategy of the other players, and no one has anything to gain by changing only one's own strategy.
Let's solve the above problem through the lens of Game theory. Since communication is not allowed between you and your friend. Therefore, you are oblivious to the strategy of your friend. Along with that, you are affected by your decision as well as your friend's decision. You will make one of the two choices i.e confess the crime or stay silent.
The cost of staying silent is either one year or ten years. On average, you will spend five and a half years in prison. The cost of confessing the crime is either zero or five years. On average, you will spend two and a half years in prison. The best strategy is to confess the crime. Your friend will also think like that and ended up confessing the crime. Both of you were sent to jail for five years. This is known as the Nash Equilibrium because no one can gain anything by changing their strategies. This is the best strategy only in case of non-cooperating situations.
Sometimes acting because of self-interest produces the worst outcome for the group. Altruistic or Cooperative behavior pays off in the long run. If you and your friend cooperate with each other then both of you will stay silent. Hence spend only one year in prison. It is a win-win situation for both of you. Always think about the win-win situation while interacting with the other person. The problem arises due to fear. What happens if your friend cheats on you? The antidote to fear is trust. Trust is the foundation of any relationship. Trust and Cooperative behavior will always nudge people toward a win-win scenario and improve the quality of their lives.
A classical Game Theory case. People are not taking vaccines in the hope that everyone else would be vaccinated and they would be safe. Vineet Raj Kapoor
Learning will be of no use unless we apply it in our day-to-day life. The arms race is another application of the Prisoner's Dilemma.
Arms Race is a military term in which two countries are involved in accumulating a large number of weapons and ammunition to enhance their military strength. Initially, both countries have an equal number of weapons and ammunition. One of the countries spends its resources to increase its military power. Increased military power will help it in defeating another country in times of conflict. By the same logic, the other country will also increase its military power by utilizing its precious resources.
Once again both countries are at the same level but with more ammunition and weapons. Participating in the arms race is akin to confessing the crime in a prisoner's dilemma that yields the worst outcome for both parties. Worst outcome in the sense that the resources can be spent elsewhere such as improving the education system or the health infrastructure. The lesson is to identify the prisoner's dilemma situation and through cooperation move towards the win-win scenario.
Status Signalling is another application of a prisoner's dilemma. People fell into considerable debt by buying expensive clothes, expensive cars, or by going to expensive restaurants. People imitate others due to the presence of mirror neurons in the brain. When one of our neighbors bought an expensive car, we reciprocate and do the same. Hence, the rat race of status signaling starts.
Participating in the race is akin to confessing the crime whereas staying out of it is akin to being silent in a prisoner's dilemma. The root cause for this behavior is either to impress others or to find happiness in materialistic things. The truth is anything outside of your body will never give you permanent happiness. Everybody wants admiration, love, and respect from others. Never seek admiration by buying expensive stuff instead earn it through kindness, unconditional love, and humility. The wealth can't be seen. Never buy the stuff you don't need to impress the people you don't like. Being aware of the prisoner's dilemma will help you make smart financial decisions. Smart decisions will nudge you towards the path of financial independence.
Having loads of money doesn't make you a better person.. Spending it smart does. Ziad K. Abdelnour
The prisoner's dilemma has an important role to play in the business world. It is very useful in an oligopolistic market but ineffective in a monopolistic market. In the Oligopolistic market, multiple players are competing for the product to generate their revenue. Hence, the strategy of one player will not only affect itself but the other players will also get affected by it. No strategy is required in a monopolistic market because it's a single-player game.
A hypothetical example of Maggi and Yippee will be helpful in understanding the concept. Both products are produced by different companies and are sold at the same price. The current price is generating a revenue of ten million for both companies. One of the companies wants to increase its revenue so it starts selling its product at a low price. The customers switched to the low-cost product and its revenue will be increased to twelve million whereas the revenue of the product which is selling at the old cost will be decreased to seven million.
To maintain its competitive edge, the other company has also lowered the cost of its product. Once again both companies are selling their products at the same price but at a lower cost. Both of them are generating a revenue of nine million due to the low cost of its product. Decreasing the cost of a product is akin to defaulting whereas keeping the same price is akin to staying silent in a prisoner's dilemma. Competition is good from the standpoint of customers whereas bad from the company's standpoint. A similar strategy is used by Reliance Jio to maintain its competitive prowess.
Warren Buffet shared his insight on the prisoner's dilemma in his 1986 letter to shareholders:
Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so look like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businesses. But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs become the baseline for reduced prices industry-wide. Viewed individually, each company's capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neuralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic.
We have seen multiple examples of prisoner's dilemmas in our day-to-day life. In the absence of trust, people gravitate toward nash equilibrium whereas trust/cooperation will help us to achieve the optimal outcome. Cooperation with others will generally lead us toward a win-win scenario.
Does cooperation/trust really improve our lives?
Looking at this problem through the evolutionary lens gives deeper insight. Symbiosis is the term used for organisms that can't perform an important function alone. Hence, takes the help of another organism that performs the function for them and in return benefits from the interaction. The cooperation between the two interacting organisms creates a win-win situation for them. The anatomy of an organism sets a limit to the number of functions it can perform.
The two cooperative organisms will create emergent properties which are greater than the sum of their individual strengths. According to Charles Darwin, an organism is considered the fittest that adapts itself to the changing environment. Those who adapt will survive and the rest of them will go extinct. Therefore, the chances of survival of a species increase who is involved in cooperative behavior.
One hand washes the other. Lucius Annaeus Seneca
A shark can't clean its teeth on its own. Therefore, takes the help of a fish to clean its teeth. It won't increase its survival rate but definitely enhances the quality of its life. Healthy teeth will help it to effectively feed on its prey which as result adds some extra years to its life.
The presence of mitochondria inside a cell is not due to natural selection. According to one theory, mitochondrion and the host cell exist as prokaryotic cells, and their presence inside the cell is a result of mutual cooperation. Another theory states that mitochondrion is acquired by the eukaryotic cell for the purpose of converting the toxic oxygen radicals into harmless water. Whichever is true, mitochondria are now an indispensable part of a cell.
Mitochondria is an energy-producing organelle of a cell. It produces Adenosine Triphosphate(ATP) that acts as an energy currency of a cell. A large number of chemical reactions inside the cell needed energy for their completion. Mitochondria acts as a rich energy source for all the chemical reactions happening inside the cell. This event happened two billion years ago. Complex organisms like us won't exist if these two cells won't cooperate with each other.
Another example is the presence of bacteria inside the digestive system of a cow. It helps a cow to digest the cellulose taken from hay and grass. In return, the digestive tract of a cow provides an energy-rich environment for the nourishment of bacteria. Humans won't be able to digest the cellulose because of the absence of such bacteria inside their gut.
Another example is that of Hawaiian squid and a bacterium, Vibrio Fisheri. It emits light and lives in the light-producing area of a squid. The predator who wants to eat the bacteria has to pass through the squid and the light produced by the bacteria helps the squid in camouflaging itself from the predators.
Cooperation, collaboration, and coordination are together more powerful than the competition. Hendrith Vanlon Smith Jr
Cooperation not only helps in survival rate but also drives innovation. It helps in achieving fast results. Railroads and telegraphs are the perfect examples to understand the role of cooperation in innovation. Telegraph is the system of transmitting messages from one place to another over wires. Therefore, the messages are conveyed in advance whether the train is scheduled on time or not.
Perishable goods will be loaded or unloaded on trains due to the updates which make the businesses profitable. In return, the trains provided the way to telegraph companies to expand their infrastructure to far-flung areas. The poles and wires which are the backbone of telegraph companies will be carried by train from one place to another. The two companies are now interdependent on each other and can't conceive of doing business without the other. Instead of duplicating the resources, both companies collaborate with each other and freed resources will be utilized for further advancement.
Conclusion: The cells within us cooperate with each other. How often do humans cooperate with each other? Instead of collaboration, we started competing with others and destroying the delicate relations with our loved ones. Cooperation is the only model that helps in driving civilization forward. Identify the areas in your life that are working on the principle of prisoner's dilemma. Inculcate good habits within yourself to foster good relations with others. Happy relations serve as a foundation for trust. Trust and cooperation between two persons will nudge them towards the optimal results in a prisoner's dilemma.
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Photo by Anika Huizinga on Unsplash
Selection of topic is great each time ! ✨
Finally understood prisoner's dilemma. Very well written.