The Prisoner's Dilemma

I’ve come to realize that Ecocentricity is a part-time economics blog. So many environmental issues are connected to some aspect of economics, and I genuinely enjoy exploring these linkages. In the past, I’ve covered the multiplier effect, the tragedy of the commons, and externalities. This week, let’s explore the prisoner’s dilemma.

Originally conceptualized by a couple of American mathematicians in 1950, the prisoner’s dilemma hypothesizes a decision matrix wherein two people can choose to either cooperate with each other or not. The classic hypothetical is two arrested criminals who can either keep their mouths shut when talking to the police (i.e. cooperate with each other) or otherwise rat on their counterpart (i.e. defect). If both cooperate and stay quiet, they each go to prison for one year. If they both defect and rat on each other, they each go to prison for two years. If either prisoner defects while the other one cooperates, the defector gets no jail time while the other gets three years in prison (because the police reward the person who helped them, and punish the other).

Here it is in matrix form:

In classical economics, we assume that parties are rational and purely self-interested. When you layer those assumptions onto this hypothetical, the only logical decision the prisoners will make is to both defect, getting two years in prison each. If you’re hearing about this for the first time, that might surprise you. If they’d just cooperated with each other instead of the police, they would only get one year each!

Here is why an economist would say they will defect. If Prisoner A cooperates, Prisoner B knows he or she will get one year for cooperating and zero years for defecting. If Prisoner A defects instead, Prisoner B knows he or she will get three years for cooperating or two for defecting. Of course, Prisoner B wants to serve the shortest time possible but can’t control what the other person will do. But no matter what Prisoner A does, Prisoner B will serve less time in prison by defecting. The same goes for Prisoner A’s choice, and so economists predict that both of these rational, self-interested people would defect.

An economist would also say that this outcome is suboptimal for the total utility in the system. Here’s what that means – if you think about what is best for the prisoners all together, the optimal outcome is two total years in prison (they both cooperate) and the worst outcome is four total years in prison (they both defect). So when they make decisions as purely self-interested actors and both defect, it does not result in what is best for the collective.

That sounds a lot like how purely self-interested, profit seeking companies do not create optimal outcomes for society! Many of the environmental problems seen globally come from profitable companies that operate in either an extractive or polluting manner, seeking to enrich themselves while harming communities and ecosystems. In the long term, this also harms those companies because they will find that social and environmental degradation inhibits their ability to operate profitably. We need companies to think about more than just their own short-term economic interests.

Whether we are talking about hypothetical prisoners or multinational corporations, the lesson here is the same. We need to stop asking, “What’s in it for me?” Instead, let’s start asking “What’s in it for us?”