A Prisoner’s Dilemma is a situation where the best choice for the individual is to defect from the group, even though cooperation would be optimal if all participants did so.

The model’s name comes from the classic case of two criminals under interrogation for a crime they committed.

With no way to communicate, they are both given the opportunity to betray the other or stay silent.

Furthermore,

* If both stay silent, both serve one year in prison
* If both betray, both serve three years
* If one betrays and the other remains silent, the betrayer will go free while the other serves five years

A moment’s thought reveals that, regardless of the other’s choice, the optimal choice is to betray.

Prisoner’s Dilemmas are frequent in finance and the broader economy.

In fact, any business that accepts credit can easily find itself center stage in a large Prisoner’s Dilemma.

Imagine a bank rumored to be insolvent — those who withdraw money first will likely not lose any, but if no one withdrew money the bank would not be insolvent.

“Bank runs” can also happen in supply chains if suppliers begin to doubt a company’s ability to finance inventory.

Organizations can also experience a Prisoner’s Dilemma internally.

For OPEC, the world’s largest oil-producing cartel, constituent countries are always tempted to benefit from their partner’s suppressed supply (and resulting high prices) by selling more oil.

Prisoner’s Dilemmas are also common in nature, as beautifully shown in @RichardDawkins' 1976 classic The Selfish Gene

Birds can cooperate by grooming one another’s heads for fleas and other pests, but it is always possible that the bird who receives the favor initially may not return it.

Bats are known to share food after a night of hunting, lest it they who might go hungry the following night

Symbiotic inter-species relationships also make for interesting Prisoner’s Dilemmas. Large fish need small fish to clean their gills and scales, but are forever attempted to eat their assistants.

Bacteria could completely take over their hosts and hosts could kill them off entirely, but mutual cooperation is advantageous over the host’s lifetime (interestingly, this relationship changes from symbiotic to parasitic as the host’s health declines)

While Prisoner’s Dilemmas are frequent in nature, the related Tragedy of the Commons model is just as common in human affairs.

Like Prisoner’s Dilemmas, this situation features a “cooperate or defect” choice for individuals. But unlike Prisoner’s Dilemmas, in a Tragedy of the Commons situation the individual stands to benefit from cooperation.

One simple example is living with roommates — whoever takes out the trash, does the dishes, and cleans the bathroom will benefit even if others don’t cooperate.

Another is industry advertising budgets. Prominent ad campaigns will likely benefit competitors as total demand rises, but if the entire industry held back on advertising there would be no demand at all!

Tragedies of the Commons also arise in nature. In sexually-reproducing species, the first parent to defect (leave) can propagate his genes without having to pay the cost of cooperative child-rearing.

No Prisoner’s Dilemma strategy is optimal in all environments against all opponents.

Principal sources of variation include the tendencies of other participants and whether or not the number of rounds left in the game is unknown.

However, the “Tit for Tat” strategy of rewarding or punishing your opponent’s choice in the previous round is fairly robust.

Note that although this strategy will never “win” a single game, in most environments it will fare the best over many rounds!

A conventional writeup of this thread can be found on Medium: https://medium.com/@Jake_Color/the-prisoners-dilemma-a1059ec522f