The Prisoner’s Dilemma

Better collective decisions get made when they are aligned to a common sense of purpose. Self interest can get in the way of such decisions.

A Psychological Paradox

The Prisoner’s Dilemma is a psychological paradox which demonstrates how two people acting logically and in their own self interest can create a worse outcome for themselves than if they had cooperated.

Suppose two people are arrested for a robbery. They are in separate interrogation rooms and are told that they face one year in prison if they do not say anything at all.

They are offered a deal. If they betray the other, the sentence will be two years. If they remain silent BUT the other betrays them, they will get three years.

Logically, therefore, if they were able to work together, they would both remain silent and get one year.

However, they are not allowed to speak. Self interest kicks in and they realise that if they stay silent and the other betrays them, they will get three years. If they betray the other they are guaranteed two years, which might be longer than the one year if they both stayed silent, but is better than the three years if they stay silent but are betrayed.

They both end up betraying each other, and each get two years. Acting in self interest has created a worse outcome for them both.

Making Better Decisions

How can The Prisoner’s Dilemma be avoided? If the two prisoners were allowed to talk to each other about what course of action they were each going to follow, they would undoubtedly agree to both remain silent.

Effective communication and information flow is therefore an essential component of aligning self interest with decisions that are best for all.

Implied in this scenario, however, is a shared interest in the outcome. Both prisoners want the shortest sentence possible. Add communication to the shared interest and the right answer for both is almost inevitable.

If the prisoners’ interests were not the same, however, then no amount of communication would help.

Identifiable Objectives

Examples of The Prisoner’s Dilemma surround us. Irrespective of how you voted during the Brexit referendum, no one can say they did so based upon a common sense of purpose or that they were fully informed.

Where can we apply this theory, this ideal of combining quality information and creating a shared purpose to result in better decisions? In some ways this is what financial planning actually is.

If planners can help clients find identifiable objectives (perhaps by the use of coaching skills), and then create a clear path to those objectives, then surely meaningful financial planning will result. This becomes more relevant for couples, and can result in meaningful outcomes to their families as well.

A Flag In The Ground

The Prisoner’s Dilemma is also very relevant within your financial advice business. In order to make effective decisions, they need to relate to a common goal, to shared vision and values. You need a clear flag in the ground around which everyone can gather.

Sharing information among interested parties (information which might previously have been kept close to the chest of bosses), will, along with the purpose, then help the business to reach better decisions.

Like the prisoners, acting purely in your own self interest may not result in the best outcome for anyone. Finding shared objectives and increasing knowledge can bring clients closer to their plans, and lead to teams making better decisions.