Prisoner’s Dilemma Game
Adapted from Charles A. Holts and Monica Capra’s Classroom Games: A Prisoner’s Dilemma
Each person will receive 2 playing cards, one with red suits (hearts or diamonds), and one with black suits (clubs or spades).
You will play 5 rounds of decision making duels with these cards against opponents selected by the game master.
The first two rounds of the game must by played with out communicating to who ever you are paired with.
- In the first round, if you chose a card with a red suit, you will increase your earnings by $2, and your opponent’s earnings will not change. If you chose a black suit, your earnings will not change, and you will increase your opponent’s earnings by $3.
Please hold your card to your chest when you have made your decision. After you have done so, the game leader will pair you with someone else at random. You will each reveal your cards, and write down the colors each player used, as well as your own earnings in the table below.
- In the second round, if you chose a card with a red suit, you will again increase your earnings by $2, and your opponent’s earnings will not change. If you chose a black suit, however, your earnings will not change, and this time you will increase your opponent’s earnings by $8.
Next: You will now be paired once again with a new partner at random, however, you will stay with this partner for the last 3 rounds of the game. If you wish, you are allowed to discuss strategy and incentives with your partner at this point, before preceding to the final rounds.
- In round 3, red card = $2 for the player, black card = $4 for the opponent.
Period your card (r or b) others card (r or b) your earn
1 _________ _________ _________
2 _________ _________ _________
3 _________ _________ ________
4 _________ _________ _________
5 _________ _________ _________
Create a table: black in top row and left column, red in bottom row and right column.
Black, black (top left cell): 3,3
Black, red (top right cell): 0,5
Red, black (bottom left cell): 5, 0
Red, red (bottom right cell): 2, 2
It is important for students to articulate the problem of their being a conflict between the risk for increased gains from cooperation (black cards), vs. the lesser but assured gains offered via the private incentive to defect (red card).
Discussion can be linked to individual vs collective good in a number of areas: price competition, bankruptcy and land use, individual vs cooperative labor. Or, the possibility of an individual having the private incentive to offer a low quality product, while if all sellers agreed to offer a high quality product, it would increase overall demand.
Mechanisms to ensure quality standards include warrantees, quality standards, franchising.
Another example is bankruptcy. What is the incentive for creditors not to liquidate their loans after a borrower declare bankruptcy? If all did this, then the borrower would sell at scrap value, and no individual institution would be as likely to get any of its money back.
Point out that in the first round, the gains from both people not cooperating (2, 2) are not significantly less than the benefits from both cooperating (3, 3). However in the second round, the gains from unilateral defection (2, 2) are much less than unilateral cooperation (8, 8)
It is potentially interesting to see if the rate of defection decreases after students are allowed to communicate and therefore potentially cooperate after round 2. It is also possible however that some students may bluff, agreeing to choose the black card, but defecting anyway.
If data show trends of increased cooperation after round one (no discussion) as well as an increased rate of cooperation after round two (with discussion), discuss possible explanations (bigger gain from cooperation after round 2, though private incentive remained the same, opportunity to work collectively, etc).
If any students defected in round 1, but cooperated in the repeated pairing rounds, you can ask why.
If discussing in the context of game theory, you may discuss the effects of end game strategy, where the potential to collaborate may dip slightly in the last round of pairings, as people may try to “lock in” earnings. Discuss why (no chance to be punished later etc)
Some economic interactions have a natural “end” period, such as offering a tourist (or anyone) a impressive looking but poorly made product, if they are not expected to make repeat purchases.