Prisoner’s Dilemma Writ Large

The prisoner’s dilemma:

Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of speaking to or exchanging messages with the other. The police admit they don’t have enough evidence to convict the pair on the principal charge. They plan to sentence both to a year in prison on a lesser charge. Simultaneously, the police offer each prisoner a Faustian bargain. If he testifies against his partner, he will go free while the partner will get three years in prison on the main charge. Oh, yes, there is a catch … If both prisoners testify against each other, both will be sentenced to two years in jail.

It is an interesting idea in game theory and when I have read about it in the past it was sort of an academic idea that didn’t speak to me in a visceral level. This was compounded when I would see the same dilemma play out in several of the police procedural shows my wife and I like to watch. However, I was just over at another blog where I was prompted to comment on what I termed the Walmart phenomenon. After I clicked ‘send’ I started to think that my little theory is a real-world example of the prisoner’s dilemma, but with many actors who are in isolation because of their reluctance to communicate.

So here is my basic idea: When a Walmart comes to town often the locals get up in arms in anger because they expect that dramatically fewer shoppers will choose to spend at the local shops because of the (often dramatically) lower prices at Walmart. In most instances the Walmart opens anyway and an interesting thing happens: many of the same people that complained about the store are none-the-less in there shopping. Each consumer, individually, makes the best decision for their own circumstances (pay much less for the same or functionally identical product), yet in aggregate, those decisions have a dramatic negative impact on their collective future. When their dollars are spent on goods domestically produced (as opposed to goods produced overseas), those dollars have a multiplication effect in the domestic economy. As a consequence, for instance, paying $10 for a domestically produced T-shirt might actually pay back the individual (through an overall gain to society) more than the savings than if they paid, say, $5 for the functionally identical T-shirt at Walmart that was produced overseas. Thus, as a society, we are all in the prisoner’s dilemma…

Much like how the cooperating prisoners get a lesser charge, but if one squeals on another the squealer goes free, if we, as a society, all could agree that spending the $10 on the T-shirt was best (something I believe has the potential to be proven mathematically) there still exists the opportunity for individuals to buy the $5 T-shirt and thus double the sentence of the cooperating consumers. Of course, acting in aggregate a small enough fraction wouldn’t have a noticeable impact, but that is probably not a stable situation and society could easily follow the ‘squealers’ over into non-compliance (become squealers) and everyone winds up with a worse sentence (the loss of the multiplier effect).

As I put it in my comment, “I think that the majority of us are complicit in the slitting of our own throats, one tiny decision [purchase] at a time.” Is there a way out? Walmart has become the successful behemoth it is by catering to the ‘squealers’ and I can’t conceive of a situation that would make a rational board change their behavior. Any sort of government ‘interference’, even if it could somehow be pushed past our ruling oligarchy, would run into all sorts of widespread resistance (even in absence of our highly polarized electorate) because individually each person would rather make the decision to save a few bucks now. Perhaps if we switched to the pure virtual economy (something I keep thinking about, but have yet to do any writing about), but that probably implies a level of globalization we, as a society, are likely not yet ready to contemplate.

Author: Tfoui

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