The Prisoner’s Dilemma is a short parable about two prisoners who are individually offered a chance to rat on each other for which the “ratter” would receive a lighter sentence and the “rattee” would receive a harsher sentence. The problem results from the fact that both can play this game — that is, defect — and if both do, then both do worse than they would had they both kept silent. This peculiar parable serves as a model of cooperation between two or more individuals (or corporations or countries) in ordinary life in that in many cases each individual would be personally better off not cooperating (defecting) on the other.
Chapter 8: A Structured Approach to Competitive Strategy, Part 1: The Prisoner’s Dilemma Game
This chapter has no HBR Case Study but it is important to understand. A great supplement to this chapter and to understanding Game Theory is the book, The Art of Strategy (A Game Theorist’s Guide to Success in Business and Life) by Avinash K. Dixit and Barry J. Nalebuff, the authors of Thinking Strategically.
- Describe in a few sentences the dynamics of a prisoner’s dilemma game with two competitors of a similar size and the likely equilibrium in the real world of Lowes and Home Depot.
- When a competitor wants to be “deviant,” how can others in the market control the deviant’s behavior?
I will post the discussion next week.