Last week, Australia’s Business Insider magazine published the results of a study conducted by two economists from the University of Hamburg. The findings are of interest because they invalidate some of the key assumptions upon which much economic theory is based: that human beings are fundamentally self-interested and motivated by their own selfishness. The hypothetical scenario called the ‘Prisoners Dilemma’ has long been a staple of ‘rational choice theory’, whether it is applied in economics or in political science. The idea behind the scenario is that the game is set to provide incentives for prisoners to betray their partner in crime in order to save their own skin. This form of ‘game theory’ was notoriously referred to as ‘Fuck you buddy,’ by the American mathematician John Nash. Ironically, for a branch of social science that prides itself on being as ‘scientific’ as possible, this prisoner’s dilemma had never actually been tried on real prisoners. As it turns out, the researchers found that fewer inmates were willing to sell out their cell-mates than expected.
It would be nice to think that the findings will have some effect on mainstream economic theory, but I have my doubts. Over the past week I have been posting critical commentary on a relatively recent book written by American economist Bryan Caplan, working within the ‘rational choice tradition.’ In the book, the author claims that his argument is controversial for economists because he does not presume the rationality of what are called ‘median voters’. The results of this recent study would, perhaps, not surprise our entrepid economist. However, when one becomes familiar with economic studies, it becomes apparent that we are being presented here with a rather narrow spectrum of rationality: one is rational when one acts in their own self-interest; the obverse then, is that people who do not display such self-interested behaviour are clearly irrational. When your theory cannot account for the reality it confronts, the best thing to do, it seems, is to redefine the reality in ways that does not undermine the theory. So rather than attempt to understand non-selfish behaviour as a different kind of rationality, the strategy is to dismiss it as non-rational or irrational behaviour altogether. With so much at stake in the embrace of rational choice theory – even by self-styled rogue economists like Caplan – I suspect that the paradigm will be with us for some time to come. The full story from Business Insider is posted below.
The “prisoner’s dilemma” is a familiar concept to just about anybody that took Econ 101. The basic version goes like this. Two criminals are arrested, but police can’t convict either on the primary charge, so they plan to sentence them to a year in jail on a lesser charge. Each of the prisoners, who can’t communicate with each other, are given the option of testifying against their partner. If they testify, and their partner remains silent, the partner gets 3 years and they go free. If they both testify, both get two. If both remain silent, they each get one.
In game theory, betraying your partner, or “defecting” is always the dominant strategy as it always has a slightly higher payoff in a simultaneous game. It’s what’s known as a “Nash Equilibrium,” after Nobel Prize winning mathematician and A Beautiful Mind subject John Nash. In sequential games, where players know each other’s previous behaviour and have the opportunity to punish each other, defection is the dominant strategy as well. However, on a Pareto basis, the best outcome for both players is mutual cooperation.
Yet no one’s ever actually run the experiment on real prisoners before, until two University of Hamburg economists tried it out in a recent study comparing the behaviour of inmates and students. Surprisingly, for the classic version of the game, prisoners were far more cooperative than expected. Menusch Khadjavi and Andreas Lange put the famous game to the test for the first time ever, putting a group of prisoners in Lower Saxony’s primary women’s prison, as well as students through both simultaneous and sequential versions of the game. The payoffs obviously weren’t years off sentences, but euros for students, and the equivalent value in coffee or cigarettes for prisoners. They expected, building off of game theory and behavioural economic research that show humans are more cooperative than the purely rational model that economists traditionally use, that there would be a fair amount of first-mover cooperation, even in the simultaneous simulation where there’s no way to react to the other player’s decisions. And even in the sequential game, where you get a higher payoff for betraying a cooperative first mover, a fair amount will still reciprocate.
As for the difference between student and prisoner behaviour, you’d expect that a prison population might be more jaded and distrustful, and therefore more likely to defect. The results went exactly the other way for the simultaneous game, only 37% of students cooperate. Inmates cooperated 56% of the time. On a pair basis, only 13% of student pairs managed to get the best mutual outcome and cooperate, whereas 30% of prisoners do. In the sequential game, way more students (63%) cooperate, so the mutual cooperation rate skyrockets to 39%. For prisoners, it remains about the same. What’s interesting is that the simultaneous game requires far more blind trust out from both parties, and you don’t have a chance to retaliate or make up for being betrayed later. Yet prisoners are still significantly more cooperative in that scenario.
Obviously the payoffs aren’t as serious as a year or three of your life, but the paper still demonstrates that prisoners aren’t necessarily as calculating, self-interested, and untrusting as you might expect, and as behavioural economists have argued for years, as mathematically interesting as Nash equilibrium might be, they don’t line up with real behaviour all that well.