4. Prisoner’s Dilemma

Self-interest does not always lead to the greatest benefit for society as a whole. Economists often use a story called the “prisoner’s dilemma” to illustrate this. Here is how the story is narrated in The Stanford Encyclopedia of Philosophy:

“Tanya and Cinque have been arrested for robbing the Hibernia Savings Bank and placed in separate isolation cells. Both care much more about their personal freedom than about the welfare of their accomplice. A clever prosecutor makes the following offer to each: ‘You may choose to confess or remain silent. If you confess and your accomplice remains silent, I will drop all charges against you and use your testimony to ensure that your accomplice does serious time. Likewise, if your accomplice confesses while you remain silent, they will go free while you do the time. If you both confess, I get two convictions, but I’ll see to it that you both get early parole. If you both remain silent, I’ll have to settle for token sentences on firearms possession charges. If you wish to confess, you must leave a note with the jailer before my return tomorrow morning.’ The dilemma faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent.” (Steven Kuhn, “Prisoner’s Dilemma”, The Stanford Encyclopedia of Philosophy).

Each prisoner evaluates their situation rationally and concludes that it is in their self-interest to confess, regardless of whether the other prisoner does or not. As a result, both prisoners confess, and they both get more jail time than if they had both stayed silent. If only they were able to put their self-interest aside and cooperate for the common good, they would both achieve a better outcome.

The prisoner’s dilemma is just a story, but the economic ideas behind it apply to many real-world situations. One such situation is climate change. While it is to all countries’ advantage to prevent irreversible damage to the environment, each country has the rational incentive to extract as many natural resources as possible to generate wealth for itself. One solution to this problem could be for governments to engage in collective action through multilateral organizations to enforce cooperation and protect the common good from self-interested actions by individual countries.