Prisoner's Dilemma is a paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process. In this session, we will be looking at The Prisoner's Dilemma and how it affects our decision making, group and team dynamics, business decisions. We'll look at real world case studies and nature with a goal of understanding this dilemma better.

1. codebytsPrisoner’s Dilemma
TJ Gokcen
@tjgokcen
@codebyts

2. If men were actuated by self-interest, which they are
not— except in the case of a few saints— the whole
human race would co-operate. There would be no
more wars, no more armies, no more bombs.
Bertrand Russell

3. Game Theory
• Search For cooperation, especially human cooperation
• Game Theory: a branch of mathematics, study of strategic
decision making
• Game Theory games applied to business and economics

4. Dr. John Forbes Nash, Jr.

5. Dr. John Forbes Nash, Jr.

6. Cooperative / Non-cooperative
• A game is cooperative if the players are able to form binding
commitments.
• For instance, the legal system requires them to adhere to
their promises.
• In noncooperative games, this is not possible.

7. Simultaneous / Sequential
• Simultaneous games are games where both players move
simultaneously, or if they do not move simultaneously, the
later players are unaware of the earlier players' actions
(making them effectively simultaneous).
• Rock-Paper-Scissors
• Sequential games (or dynamic games) are games where later
players have some knowledge about earlier actions.
• Strategy Games

8. Perfect / imperfect information
• When the players have perfect information:
• Ultimatum Game
• When there is no perfect information:
• Poker

9. Ultimatum Game
• Alex is given $500.
• Alex, makes an offer to give some of this money to John.
• If John, accepts both of them get to keep the money.
• If John refuses, both lose.

10. Combinatorial
• Games in which the difficulty of finding an optimal strategy
stems from the multiplicity of possible moves
• There is no unified theory addressing combinatorial elements
in games.
• There are mathematical tools that can solve particular
problems and answer general questions.
• Chess

11. Zero-sum / Non-zero-sum
• In zero-sum games the total benefit to all players in the game,
for every combination of strategies, always adds to zero
• Poker
• Non-zero sum games, are where outcome has net results
greater or less than zero
• Prisoner’s Dilemma

12. Symmetric / Asymmetric
• A symmetric game is a game where the payoffs for playing a
particular strategy depend only on the other strategies
employed, not on who is playing them.
• If the identities of the players can be changed without
changing the payoff to the strategies, then a game is
symmetric.
• Many of the commonly studied 2×2 games are symmetric.

13. Prisoner’s Dilemma
• 2 criminals get busted for drugs.
• If they keep their mouths shut, they will both walk away.
• But if one rats out the other, the snitch will go free and the
other will do time.
• If both turn on each other, both will do time … but probably
not as much, since they have both cooperated with the
prosecution.

14. Prisoner’s Dilemma
• They are in separate cells being sweated by the cops.
What do they do?

15. © 2010 Encyclopedia Britannica, Inc.

16. • Race for more sunlight
• If trees can agree to a certain height,
• each can focus on other activities,
like reproduction

17. Red Queen Effect
• Lions chase antelopes . Lynxes chase rabbits. Over time, the
antelopes and the rabbits get faster. But so do Lions and
lynxes.
• The antelopes and rabbits that are faster than their peers
survive longer, and pass their genes on to the next
generation.
• In the end, generations are faster than the ones before, but
no net gain to any of them.

18. Red Queen Effect in Business
• We work longer hours in the office than our parents or
grandparents
• There is no net advantage in this
• We are getting better just to stay where we are.

19. Red Queen Effect in Business
• Look at business plans of the 5 largest competitors in any
market
• It’s certain that they all would be planning to increase market
share by being better than they are today
• However
• This is not possible (not everybody can gain market
share at the same time)
• Everyone else will get better (Red Queen Factor)

20. Corporations and Cooperation
• Excellent at the currencies of reason and cash
• Cold, efficient and low cost
• ITT, GE, IBM, Ford, Oil Companies, Monsanto

21. Corporations and Cooperation
• Excellent at the currencies of emotion, commitment, trust and
love
• Better cooperators
• Inspire significant affection in their customers, employees and
suppliers
• The Body Shop, Netflix, Google, Apple, Pixar

22. Corporations and Cooperation
• As employees become better educated and wealthier, the
balance of power between the corporation and the individual
shifts in favor of the latter.
• Gaining the cooperation of the best employees may be the
ultimate frontier in competition, at least in knowledge-intensive
companies.

23. Corporations and Cooperation
• Some statistical support for the importance of cooperation is
provided by a study undertaken by the Business Round Table and
quoted by Robert Waterman.
• A 30 -year study of ‘socially responsible’ companies—
presumably excellent cooperators— showed that they
outperformed the Dow Jones index by 7.6 times!

24. Cooperation vs Competition
• Cooperation is how we create value: how we create the pie.
• Competition is how we capture value: how we grab our slice of
the pie.

25. Tit for Tat

26. Tit for Tat
• Long-term advantage often requires cooperating players to ‘take
turns’ in collecting the payoff:
• I let you win the biggest prize this time, perhaps taking nothing
myself, if you let me take the biggest prize next time.
• Cooperation is about comprehending how to make the pie bigger,
on the understanding that when we have to divide it, we will behave
reasonably, within the context of a long-term relationship.

27. Tit for Tat
• We see this behavior in mall shops:
• Even if there is a competition between shops in a mall, attracting
more customers to the mall (making the pie bigger), is to all’s
benefit.
• But for tit-for-tat to work, you need trust
• The more trust, the more this strategy is effective
• Teams, divisions in a company need to trust each other

28. Tit for Tat
• Operating System developers (desktop or mobile) (Microsoft,
Apple, Google) require powerful chips (from Intel, AMD, ARM)
• These chips make software feasible and economic.
• Same as telecommunication companies
• Bigger the pie, better for all of them.

29. Players
• Identify the players and categorize them into customers, suppliers,
competitors, and complementors.
• A competitor is a complementor if your customers value your
product more when they also have that other player’s product.
• If they value your product less when they have the other player’s
product, then it is a competitor.
• Same applies to suppliers.

30. Added Value
• Add up the total value supplied by all the players.
• Now repeat that, but for all the players except yourself.
• The difference is what you uniquely add— it’s often quite small.
• Your strategy , and in particular whether you encourage or rebuff
cooperators, can determine how much value there is in the system.

31. Rules
• Rules are an important part of the game and can often be subtly
shifted in your favor.
• But rules can always be rewritten by a creative player who has real
value to add.

32. Tactics
• Businesses operate under a fog
• Sometimes it is useful to clear the fog: Advertising what’s coming
• But sometimes it is better to operate under a fog.
• In 1992, American Airways introduced simplified air fares.
• Others retaliated
• Airline industry lost $5b as a result

33. Scope
• Look beyond the boundaries of the game.
• No business game is an island.
• Players in one game also play in others.
• Anticipate and prevent, or at least delay, such invasions.

34. Conclusions
• Build trust within teams
• Build trust between companies, however;
• Two computer programs were made: Jesus and Lucifer
• When Jesus played Generous Tit for Tat, Lucifer attacked and
the whole system broke down
Lesson?

35. Conclusions
Be generous. Be nice. But be smart.