Prisoner’s Dilemma

Prisoner’s Dilemma

If the Strategy of Giving fails, the explanation may lie in the game theory’s prisoner’s dilemma. Prisoner’s dilemma in a nutshell: Two people are suspects in a crime where they could face jail time if convicted. The suspects have agreed that neither one will talk in the interrogations. The interrogators offer a deal to both of the suspects. If only one of them comes clean, he will be released, but his partner will then get a ten-year prison sentence. If both of them talk, both will be sentenced to five years in prison. If neither confesses, they will be both sentenced to just one year in prison. The prisoners are not able to communicate to each other, so there is no way for them to know what the other one has chosen. In the name of common interest, both of them should keep quiet. But, from an individual’s perspective, the best alternative is to talk.

Business’s Dilemma

A company creates a web service and makes it free for the user. The company hopes that the users will help develop and market the service in return. The user wants to receive a useful free service and have features that are important for him in the updated version. If the parties do not know each other well, both of them may have doubts on the other’s motives. The company is afraid that the user will just use the service for free, but will not participate in development or marketing. The user is afraid that the company will exploit him by making money off his ideas and his efforts. In the short term, both parties benefit from this selfish way of thinking, but in the long-term, both of them lose. According to game theory, the common interest does not prevail if the situation is unique. Trust is only built through repetition, and it is not until then that the parties really start to think about the overall benefit. This means that the company needs to convince the user of the sincerity of its motives and show that common interest beats selfishness. The company needs to be selfless first and learn how to give without immediate payback. After that the other side will make their choice. The prisoner’s dilemma teaches companies to strive towards revealing their motives and to think about the overall benefit. Without it, the strategy will fail.

Lesson’s learned

  • Be Transparent; lay down your cards, and show people what your intentions are
  • Create the Win/Win; you want to win, but your customer also wants to do the same

Reference
An excerpt from a free eBook by Miikka Leinonen

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