Game theory and freeing prisoners

Something that occupied me the for quite some time now is how to
resolve game theory through communication and enforcable contracts. And how that resolution evolved and is still developing.

The Prisoner's Dilemma is a game proposed at the founding of game theory. In this game two rationally self-interested actors are forced into the worst outcome possible in the game by completely rational choices. It had a huge influence on the development of economics and following that the picture of humans.

In the Prisoner's Dilemma two actors have a choice to either cooperate or defect. Defecting while the other actor cooperates increases the payout at the (larger) expense of the other actor. If both defect the individual and overall payout is considerably less than if both cooperate.

The standard example is two people caught in a small crime for which they will get to prison for a short time. But both of them know of a large crime they committed together. If one would confess to that crime and implicate the other, that person would receive a reduced sentence of no time in prison and the other would go to prison for a very long time. If both confess, they would both receive a reduced sentence of a long time in prison.

The Nash equilibrium - the optimal strategy that is stable against deviancy - of that game is that both confess/implicate the other.

Many situation can be modelled as such a game and the Nash equilibrium does not change. But it is no real solution to that problem - the solution would the answer to the question: How can the players stabilize the best payout for everyone involved?

This stabilization of the best payout is what evolution is quite good at finding and humans as evolved beings come with quite some tools in that direction - in the form of inclination to certain behavior. The strongest of those tools is communication.

To get actors to behave like the rational self-interested models in the game, they can not be allowed to communicate. If communication is a possibility most humans will cooperate. But they do this quite wary of defectors.

One could say the whole setup of game theory is discussing those defectors - the rationally self-interested actors. Since communication is cheap, those can easily lie and then gain the benefit at the expense of the other actor. In the real world this is why honesty and truthfulness - keeping your word - is so important to humans. Information about that reliability is encoded in reputation, one of the most important values in social contacts.

But can that be formalized or institutionalized? One possibility in that direction are enforcable contracts - If you have those you can stabilize an overall best equilibrium by penalizing all non-cooperative actions. The problem is that contracts do not enforce themselves - they need to be enforced by something that has actual force over the actors. In history this was often a call to a god or ancestors. In our modern times we have states to provide these contracts. This is the glaring flaw in the simple contract based, free-market anarchy - you need something to enforce those contracts and we found nothing better than states.


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