Prisoner’s Dilemma

Prisoner’s Dilemma
Prisoner 2
Silent (Cooperate) Betray (Non-
cooperate)
Silent 1, 1 3, 0
Prisoner 1 (Cooperate)
Betray (Non- 0, 3 2, 2
cooperate)

• Betray: testifying that the other committed the crime

• If A and B each betray the other, each of them serves 2 years in
prison
• If A betrays B but B remains silent, A will be set free and B will serve
3 years in prison (and vice versa)
• If A and B both remain silent, both of them will only serve 1 year in
prison (on the lesser charge)
• Communication impossible
• Both prisoners would choose to betray due to self-interest
• If they could co-operate then imprisonment could have reduced
 Prisoner 2
Silent (Cooperate) Betray (Non-
cooperate)
Silent (Cooperate) 1, 1 3, 0
Prisoner 1
Betray (Non-
0, 3 2, 2
cooperate)

• Betrayal is the dominant strategy for Prisoner 2

• Similarly, betrayal is the dominant strategy for Prisoner 1
• Both prisoners would choose to betray due to self-interest
• If they could co-operate then imprisonment could have
reduced
 Hardin herder Game
Prisoner’s Dilemma
Player 2
Cooperate Non-cooperate
Player 1 Cooperate 10, 10 -1, 11
Non-cooperate 11, -1 0, 0

• Strategic game
• A set of players
• For each player, a set of action
• For each player, preference (given pay-off
function) over the set of action profile
• Prisoner’s Dilemma Game- noncooperative game
–communication impossible
• All players possess complete information – full
structure of the game tree and payoffs
• (Non-cooperate, Non-cooperate) is Nash equilibrium
• (Non-cooperate, Non-cooperate) strictly dominates as it
is superior , no matter what the other players do
• Mutually desirable outcome (Cooperate, Cooperate)
cannot be attained due to free riding
• "free riders" are those who consume more than their fair
share of a public resource, or shoulder less than a fair
share of the costs of its production
– Excessive use of common property resource
• Each player has a dominant strategy – player is always
better-off by choosing this strategy- no matter what other
player does
• If both players choose their dominant strategy – they
produce outcome - Not Pareto-optimal outcome
• Contradicts
– Rational human beings can achieve rational results
 Prisoner’s Dilemma
• Each player has a dominant strategy
• Equilibrium that arises from using dominant strategies
is worse for every player than the outcome that would
arise if every player used her dominated strategy
instead

6
 Free-rider Problem
One person cannot be excluded from the benefits that others provide (collective benefit)

Each person is motivated not to contribute to the joint effort, but to free-ride on the
efforts of others

All persons free ride

Collective benefit will not be produced

• Private rationality  collective irrationality

• Goal:
• To sustain mutually beneficial cooperative outcome
overcome incentives to cheat
 How to achieve cooperation?
• Government
• Private
• Collective
 Centralized Control
• Central authority decides to impose a penalty of 2 profits
units on anyone who is considered to be using defect
strategy
Player 2
Cooperate Non-cooperate
Player 1 Cooperate 10, 10 -1, 9
11
Non-cooperate 9,11,
-1-1 -2,
0, -2
0
(Cooperate, cooperate) is the Nash equilibrium – Pareto
Efficient equilibrium
• Central authority
 Accurately determines capacity of common pool resource
 Unambiguously assigns the capacity
 Monitors action
 Unfailingly sanctions noncompliance
 Assumptions for Central Control
• Zero cost of creating and maintaining such an
agency
• Accuracy of information
• Adequate monitoring capabilities
• Sanctioning reliability
 When assumptions do not hold
• Incomplete information about carrying capacity of
the meadow
• Incomplete information about the actions of the
herders
– Errors in punishment
• Central authority punishes defectors (correct)
with probability y and fails to punishes defectors
with probability 1-y (erroneous)
• Central authority punishes cooperative actions
(erroneous) with probability x and does not
punish cooperative actions with probability 1-x
(correct)
 Player 2
Cooperate Non-cooperate
Player 1 Cooperate 10-2x, 10-2x -1-2x, 11-2y
Non-cooperate 11-2y, -1-2x -2y, -2y
• Assume central authority impose both types of sanctions correctly
with probability 0.7
 Y = 0.7
 1-x = 0.7 or x = 0.3
Player 2
Cooperate Non-cooperate
Player 1 Cooperate 9.4, 9.4 -1.6, 9.6
Non-cooperate 9.6, -1.6 -1.4, -1.4

• Nash equilibrium (noncooperation, noncooperation) –

not Pareto optimal
• Equilibrium for regulated game has lower value than
that of the unregulated game
 Privatization of Land for Fodder
• Invest in fence and their maintenance
• Monitoring and sanctioning
• Rainfall erratic-one part of grazing lush and
another part barren
• In a given year one herder may have profit
and another may not have
• Dividing the commons may impoverish and
lead to overgrazing where forage is
inadequate
Difficult to establish property rights for
nonstationary resource – water, fisheries
• Centralization and Privatization advocates that
institutional change must come from outside
and be imposed on individuals affected
– Getting institutions right is time consuming
 Privatisation of UK woodlands
• BBC, January 2011
– Department for Environment, Food and Rural Affairs
– "new approach to ownership and management of
woodlands and forests, with a reducing role for the state
and a growing role for the private sector and civil society".
– "a managed programme of reform to further develop a
competitive, thriving and resilient forestry sector that
includes many sustainably-managed woods"
• theguardian
– Plans to build luxury holiday cabins, majority-owned by
venture capitalists, in public forests put protected wildlife
and their habitats at risk
• The Independent Panel on Forestry
– “We propose that the public forest estate should remain in
public ownership and be defined in statute as land held in
trust for the nation.”