The Economics Book

273

See also: Economic man 52–53 ■ Effects of limited competition 90–91 ■

Economics and tradition 166–67 ■ Game theory 234–41

I

n 1984, US economist Robert

Axelrod wrote The Evolution

of Cooperation. It was based

on the results of a series of games,

in which the strategies of game

theory specialists were pitted

against each other via computer

programs to see which was most

successful. The game they played

was the prisoner’s dilemma

(p.238), a game involving two

thieves captured by the police.

Should each thief choose to

confess, stay silent, or “sell out”

the other thief? The game explores

whether it is wiser to cooperate for

mutual benefit or to act selfishly.

The best strategy

Axelrod discovered that cooperation

can arise through self-interested

actions. His series of games tested

many strategies. The most

successful strategy was simple

tit-for-tat, where a player cooperates

on the first move and then mirrors

his or her opponent, so is never

the first to “sell out.” The most

successful approaches were those

that were “nice.” Cooperation was

found to produce mutually

beneficial outcomes. But one must

not be too nice—if someone is

betrayed, it is essential to hit back

in the next move. To maintain

credibility, players must retaliate

immediately if they are “sold out.”

This approach to the analysis of

competition and cooperation has

developed into a rich field that

examines how social and even

moral rules emerge. ■

CONTEMPORARY ECONOMICS

OVER TIME, EVEN THE

SELFISH COOPERATE

WITH OTHERS

When President Bush and Russian

President Putin signed the Treaty of

Moscow in 2002, they cooperated to

greatly reduce their nuclear arsenals,

despite mutual distrust.

IN CONTEXT

FOCUS
Decision making

KEY THINKER
Robert Axelrod (1953– )

BEFORE
1859 British biologist Charles
Darwin publishes On the
Origin of Species, arguing that
the best-adapted species are
those most likely to survive.

1971 US biologist Robert
Trivers publishes The
Evolution of Reciprocal
Altruism, which shows how
altruism and cooperation
can benefit individuals.

AFTER
1986 US economists Drew
Fudenberg and Eric Maskin
explore cooperation strategies
for repeated games.

1994 British economist
Kenneth Binmore publishes
Playing Fair, using game
theory to explore the
development of morality.

COMPETITION AND COOPERATION