Pandemic: Will The Future Lead To Creating New Allies And Better Co-Operation Between Nations And Companies
What does it take to make people, business, countries to cooperate with each other when the incentives to act primarily out of self-interest are often so strong?
While the current COVID crisis is showcasing nations rallying together and probable alignment and collaboration in various spheres like the economy , defence, health and social welfare but this is not something new and finds its roots in history and study of human reaction.
There is an interesting game theory known as the “Prisoner’s Dilemma”. which lays down the foundation of “The evolution of co-operation”
Under what conditions will cooperation emerge in a world of egoists without a central authority? This question has intrigued people for a long time. And for good reason. We all know that people tend to look after themselves and their own first. Yet we also know that cooperation does occur and that our civilization is based on it. But in situations where each individual has an incentive to self-interest, how can cooperation ever develop?
Prisoner’s Dilemma is shared below with its assumptions and likely outcomes :
In this game theory, staying silent is called “cooperating,”
What do you think are the probable outcomes?
If they were able to communicate and they trusted each other, the best choice is to stay silent; that way each serves only one year in prison.
But they are not sure, that the other won’t accuse them? After all, people tend to act out of self-interest.
The cost of being the one to stay silent could prove to be high.
So, the most expected outcome when the game is played, is that both accuse the other and serve two years.
However, there is a variation to the game. In this version, the game is repeated multiple times and with experience, the prisoners are able to adjust their strategy based on the previous outcome. So if the game is played multiple times and the scenario is repeated, it may seem as if the prisoners will begin to cooperate.
This scenario is also true in the Real-world, we can see many “ Prisoner’s Dilemmas” in business and society around us
For example, We can use the Prisoner’s Dilemma as a means of understanding many real-world scenario’s based on cooperation and trust. As individuals, being selfish tends to benefit us, at least in the short term. But when everyone is selfish, everyone suffers. This is a realisation in the real world. Even in the pandemic, you will see that cooperation on a medical breakthrough, vaccine etc will need to be done with overall cooperation between nations in the larger interest of mankind so that we suffer the lowest.
Another example could be pricing strategies in Business. For example, there are two car manufacturers, Sonic car’s and Super car’s. They are the only two cars in their market with identical products of equal quality and adequate capacity to manufacture as per demand and the price each sells cars at, has a direct connection to the price the other sells his cars at. If one opts to sell at a higher price than the other, they will sell fewer cars as customers will transfer to the cheaper car. If one sells at a lower price, they will sell more cars at a lower profit margin, gaining customers from the other but losing profits significantly. In this example, if both set their prices high, both will make $100 million per year. Should one manufacturer decide to set his prices lower, the manufacturer selling cheaper has a chance to earn $150 million. In this case, the second manufacturer sells nothing and makes nothing.
If you were serving on the board of Sonic car one recommendation you could give the board, based on “ Prisoners Dilemma “ could be that the company can opt for low prices. This is because if Supercar sets its price low, then a profit of $20 million is better than $0, and if Supercar sets its price high, then a profit of $150 million is better than $100 million.
Let us see another real-world example’s for cooperation
Two oil-producing countries, Iran and Saudi Arabia. Both countries sell crude oil. After prolonged negotiation, the countries agree to keep oil production low in order to keep the world price of oil high. After they agree on production levels, each country must decide whether to cooperate and live up to this agreement or to ignore it and produce at a higher level.
Suppose the leader of Saudi Arabia thinks selfishly, One possible outcome would be:
Instead of keeping production low as agreed, Saudi Arabia could raise production and sell more oil on world markets. If Iran lives up to the agreement and keeps its production low, then Saudi Arabia will earn high profit. So while Producing at a high level can be thought as a dominant strategy by Saudi Arabia they have missed the point that Iran may reason in exactly the same way, and so both countries could end up producing at a high level. The result is the inferior outcome (from both Iran and Saudi Arabia’s standpoint) with low profits in each country. This example illustrates why oligopolies have trouble maintaining monopoly profits. The monopoly outcome is jointly rational for the oligopoly, but each oligopolist has an incentive to cheat. Just as self-interest drives the prisoners in the prisoners’ dilemma to confess, self-interest makes it difficult for the oligopoly to maintain the cooperative outcome with low production, high prices and monopoly prices.
Other examples of prisoners’ dilemmas could include arms races, advertising, and common resources
Thinking of life as an iterative game changes how you play. Positioning yourself for the future carries more weight than “winning” in the moment.
_20241010140125_original_image_2.webp)
