Two members of a criminal gang are arrested and imprisoned. Each is held in solitary confinement, unable to communicate with the other. The prosecutors lack enough evidence to convict them on the main charge but can convict both on a lesser one. They offer each prisoner a deal: betray the other by testifying, or cooperate by staying silent. The possible outcomes are:
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If both betray each other, they each serve two years.
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If one betrays while the other stays silent, the betrayer goes free while the silent one serves three years.
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If both stay silent, they each serve one year on the lesser charge.
Since they cannot communicate, they cannot coordinate an optimal strategy.
Let’s consider prisoner B’s perspective.
- If A betrays, B is better off betraying too—two years in prison instead of three.
- If A stays silent, B is still better off betraying—going free instead of serving one year.
The same logic applies to A.
If both act purely in self-interest, they betray each other and end up with two years in prison each. Ironically, had they cooperated and remained silent, they would’ve only served one year. Optimizing for self-interest leads to a worse outcome for both.
This is the classic Prisoner’s Dilemma, a concept from game theory—the study of decision-making and strategic interaction, particularly around cooperation and incentives.
At its core, the Prisoner’s Dilemma models situations where individuals, acting selfishly, harm both themselves and others, despite a better outcome being possible through cooperation.
Look around, and you’ll see the Prisoner’s Dilemma playing out everywhere.
On the roads: people flout traffic rules to save time, leading to chaos and longer delays for everyone.
In organizations: teams and individuals chase narrow goals, often at the expense of overall company performance.
In public spaces: no one maintains shared resources like parks, buses, or toilets—yet if everyone did, we’d all benefit.
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Use the Prisoner’s Dilemma as a lens to understand why people fail to collaborate, even when it would produce better outcomes.
It also helps us think about:
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Cooperation between strangers.
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The incentives required when the benefits of collaboration aren’t obvious.
Show me the incentives, and I will show you the outcome.
- Charlie Munger
In the absence of communication and clear incentives, what might lead A and B to cooperate?
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Suppose the criminal underworld enforces a strict code: never confess to the police. Breaking it means death. In such a world, both would likely stay silent. The Italian mafia has such a code called Omertà.
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Suppose confessing taints your reputation permanently. You’d never find work again. Fear of social exclusion might lead both to remain silent.
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If A and B knew they had to collaborate again in the future, they might stay silent to preserve trust.
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If they belonged to a cult that believed betrayal leads to eternal damnation, they’d likely cooperate out of shared belief.
Social constructs like laws, nationalism, religion, trust, reputation, and community are humanity’s evolved response to the Prisoner’s Dilemma. These mechanisms encourage implicit cooperation and improve collective well-being.
Thinking through this lens sheds light on why:
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Small teams often outperform large ones.
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Scrappy startups can beat large corporations.
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Close-knit communities have lower crime rates.
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Homogeneous small nations can be more cohesive than diverse, sprawling ones.
How do organizations solve the Prisoner’s Dilemma?
They emphasize values, team bonding, recognition, rules, and shared goals. Some even build cult-like cultures to foster loyalty and collaboration.
Implicit collaboration is essential—for teams, companies, societies, and nations. Use the Prisoner’s Dilemma as a mental model to understand and design for cooperation. It helps us build systems that incentivize the greater good.
Photo by Perry Grone on Unsplash.