The Prisoner’s Dilemma & Rational Self-Interest in Society

The Prisoner’s Dilemma and Rational Self-interest in a Society

John Nash was a Princeton mathematician, economist, and game theorist who argued in favor of collectivism and the welfare state while opposing a world based on rational self interest. Interestingly, his position took shape on an evening out with his friends in the late 1940’s, which formed a foundation for his work for many years to come in the field of noncooperative game theory, eventually winning him the Nobel Prize in in Economic Sciences in 1994.  His epiphany lead to The Prisoner’s Dilemma — a thought experiment that simulates a scenario in which acting rationally and according to one’s own self interest does not lead to the optimum outcome — countering Adam Smith’s claim of mutual benefits resulting from rationally self interested behavior.

The Prisoner’s Dilemma

Having committed a crime, Bonnie and Clyde are arrested and taken in by the police for questioning. They are each led to a separate interrogation room where they are encouraged by the attending officers to confess. Assuming each is rational and self interested, each must decide if he or she will tell the truth about their crime. If they both confess, they are each sentenced to five years in prison. If neither confesses, they are both sentenced to three years in prison. If Bonnie confesses and Clyde does not, Clyde is sentenced to ten years in prison and Bonnie is not sentenced at all. Similarly, if Clyde confesses and Bonnie does not, Bonnie is sentenced to ten years in prison and Clyde goes free.

The Prisoner’s Dilemma was designed to make confessing the best course of action. Since both Bonnie and Clyde are presented with the same circumstances, and both act rationally, it is logical for both to confess. However, assuming the villains do confess, they will both be sentenced to five years in prison and both end up in a very poor situation.

In his book, The Darwinian Left, Australian philosopher Peter Singer — who was greatly influenced by the work of Nash — explores this problem as a study in the ramifications of a society made up exclusively of rationally self-interested men and women. He states, “The individual pursuit of self-interest can be collectively self-defeating.” This idea, popularized by the work of Nash and Singer, flies in the face of  Adam Smith and his position in The Wealth of Nations: that in a free society, both parties benefit in the creation of wealth through acting rationally, and in their own self interest — that individual ambition serves the common good. While Singer’s logic seems to make sense at first, more consideration brings one to the understanding that most of the time, the Prisoner’s Dilemma is not an applicable model to an actual society.

The Use of Coercion

In the Prisoner’s Dilemma, man lives in shackles and his reality is a holding cell. Coercion is used to bind him and enforce strict boundaries upon him. While all institutional systems of government — even capitalism — involve coercion in some way, (i.e. capitalism has rules of property and contract that are enforced via coercive power) a free capitalist society uses coercion to expand individual liberties, whereas the society presented in the Prisoner’s Dilemma uses it as a means of legal plunder. In the Prisoner’s Dilemma, man can do nothing save what has been explicitly permitted. However, in a free society governed by property rights and a rule of law, man’s rights only end where his neighbor’s nose begins. Rational self interest causes man to thrive in the absence of government regulation and coercion, not while being bound by force. As Adam Smith recognized, when individuals are permitted to pursue their self-interest through markets, they are amazingly good at finding ways of bettering not only themselves, but society as well.

Individuals Who Change the Rules of the Game

In every society there are — as described by philosopher Ayn Rand  —  “…the men who take first steps down new roads, armed with nothing but their own vision.” These are the individuals who change the rules of the game. They convert the machinery of nature into the servant of their will. They cause society to evolve and offer man new and better opportunities through innovation and the creation of wealth. Both the rich and the poor benefit from the rationality and self interest of the movers and shakers of society. Because of these groundbreaking individuals, we are not forced to choose between three years in prison and five years in prison (a lose/lose scenario). We are free to be ourselves and make choices according to our fundamental convictions and personal preferences. Contrary to the reality proposed in the Prisoner’s Dilemma, the rules of the game are rarely ever static, thanks to these entrepreneurial men and women.

Pretense of Knowledge

The Prisoner’s Dilemma radically over-simplifies the complexities of pay offs, trade offs, and information we receive in our everyday lives. In his book, The Fatal Conceit, F.A. Hayek states that, “The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.”  The Prisoner’s Dilemma cannot be compared to real life because our everyday circumstances cannot be explained in a single paragraph — nor a million paragraphs. This thought experiment treats human preference and decision making as a science that can be calculated, mastered, and predicted; it is the “Fatal Conceit” to which Hayek is referring. In addition to this vast oversimplification, the Prisoner’s Dilemma is also centrally planned. When allowed to work, the invisible hand does a far better job than any central planner or social engineer could at delivering goods and services to the people and places who need them most. Political anarchy breeds economic order and prosperity.

It is for these reasons that Nash’s Prisoner’s Dilemma is not a correct model of real life interaction on most issues. Ultimately, similar to the argument of Thomas Sowell in The Quest for Cosmic Justice, “cosmic” harmony (a complete eradication of all disharmony) of interests is unattainable under any system of government. As soon as a central power enacts laws in an attempt to achieve this “cosmic” harmony, it necessarily creates inherent disharmony and injustice in a society. In a truly free, real-life environment, there can, however, be a general or “traditional” harmony of interests among rational self interested people because — as Smith and Hayek recognized — knowledge and preferences exist in a dispersed pattern within billions of individual minds. Therefore, the total knowledge and evolving preferences of an entire society cannot be known within a single mind. This total knowledge and general will is revealed through the process of free exchange and voluntary interaction in the marketplace. Since nobody is subjected to exactly the same circumstances in life, both parties are able to benefit through free trade. Contrary to the Prisoner’s Dilemma, the free market is a positive sum game. This mutual benefit happens every day in our society; as Smith famously stated, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.” In this statement he truly captures the beauty of a free society governed by rational self-interest. By living according to one’s own preferences and values, society benefits as a whole from the creation not only of wealth, but of beauty.

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