The Prisoner's Dilemma

A few years ago I was interviewed by a lecturer in economics at Cambridge University in England for a place on an undergraduate economics degree there.

The interview was the first time that I has come across the so-called Prisoner's Dilemma which the lecturer used to test out my economic reasoning. The Dilemma consists of a situation in which two prisoners are told that to get '100 to share between them all they have to do is agree how to divide the money. If they fail to agree how to share the money out, then they will forfeit the entire sum and neither prisoner will receive a penny of the '100. The question was asked of me, how should the money be split between the two prisoners.

I replied that the two prisoners should share the money equally, each receiving '50. This would be a fair and equitable distribution of the funds (after all, neither had apparently done anything to earn the money) and would be mutually agreeable and therefore ensure that the funds were not forfeited. It would also ensure that there would be no lasting ill feeling between the two prisoners which could well have arisen had the funds had been distributed unequally.

I was told that I had got the answer wrong. The correct answer would be for one of the prisoners to insist on receiving '95.50, thereby leaving the other prisoner with just a token 50 pence. The reason is that if the other person refuses such an unequal distribution of funds, they would forfeit all monies. The logic reads that 50 pence is better than nothing.

I did not then, and do not now agree with the Cambridge reasoning. If everyone treated everyone else in such a way, then we would soon have the sort of "selfish capitalism" which many left-leaning people erroneously think we have in fact got, where everyone takes as much as they can from anyone else and runs.

As ever, we need to approach The Prisoner's Dilemma not as the Cambridge economists did, but as economizers. We need to do what is right, which will surprise some people and delight most of them. After all, further trades with the same and other people are much more likely if a fair return is earned by all, and two lots of '50 is better than one lot of '99.50.

We need to be willing as economizers to make small sacrifices (the 50 pence) to prevent strategizers from ripping us off and getting their own way (the '99.50). That is why I left the hierarchy and I have not as yet regretted it. I did not go to Cambridge, instead I went to Birmingham, and have not for a minute regretted that either. Technologies mean that we can choose to transact only with those people who treat us in an economizing way. Don't be a prisoner yourself.

Author: Simon Buckingham

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