Thursday, October 11, 2007

Prisoners' dilemma

Most people with an economics background have heard of the prisoners’ dilemma. It is a very widely spread example of how people will end up in the worst possible situation because they didn’t cooperate and just behaved selfishly. It’s used to demonstrate that maximizing the individual happiness may lead you to a position that is not socially optimal. The story is simple: Two burglars are caught by the police and put in separate cells. Each one is told that if he confesses he will be free to go but the other burglar will get 2 years. If they both confess, both will get 1 year in prison. If no one confesses, they are free to go because there is not enough evidence to persecute them. It is obvious that is better for both not to confess and go free. The thing is they can’t communicate and each one knows that if the other confesses, the other will be free and he is going to get 2 years. The conclusion is that they both confess if they are rational.

This is only one of the games that are used in Game Theory, a subject of Economics that uses simple games to model people’s behaviors.
Anyway, the point is many people know how to solve these games and that is not hard. But few people have actually been in the position of the players and played with limited information.

That is exactly what we did in a course called Management Practice. We were divided in groups of four and we played a Prisoners Dilemma against other groups that were in different rooms without communication for 10 times in a row and it was very interesting to see the outcomes.
Everybody in the class knows the game but still there were lots of different outcomes. Some groups started cooperating since the beginning whereas others started to compete since the beginning. Others changed strategies somewhere in between. We were allowed a meeting with the other group at the 4th play. It was interesting to see how groups agreed on cooperating but still broke the deal and others didn’t.

The point is, one thing is solving the game assuming everybody is rational. Other thing is actually playing it and being in the game’s conditions and seeing that people tend not to play rationally and to add emotions and prejudices to the game. Many people feared for their credibility after the meeting and kept their word of cooperating. Some people saw the exercise as just a game. Others looked at the other groups as their class mates and they didn’t want to hurt them. Others just wanted to do “the right thing”.

It was a very enlightening experience and I must add I enjoyed it and it sums up the spirit of this MBA. It’s about seeing things happening and applying them to reality rather than just look at the books.

No comments: