Assignment 1: Prisoner's Dilemma and Voluntary Contribution Mechanism
Two experiments were run in our class. The first experiment is the prisoner's dilemma and second is voluntary contribution mechanism. Both experiments were conducted during class time under the supervision of the class' Professor. The prisoner's dilemma is when two people act according to the best personal interest but does not always result in the ideal outcome. The voluntary contribution mechanism is when people in a group make contributions from endowment and that contribution benefits the entire group but may not completely benefit the contributor if others do not contribute. Both experiments demonstrate interesting ideas regarding Nash equilibrium and the extent of cooperation, however that must be closely evaluated in this situation to evaluate the contribution of others in different treatments and to what extent each participant can maximize his or her earnings.
In the first experiment, the Nash equilibrium for the game would be for both of them to defect. The reason for this is that when viewed from Player A's perspective (see Figure 1), when Player B cooperates, Player A will benefit from defecting so that he could get 1. 0 instead of 0. 8, as highlighted in the figure. Additionally, when Player B defects, Player A will also benefit from defecting because he would get 0. 3 instead of 0. 0, that is if he chooses to cooperate. This was a non-zero sum game and the winnings were paid by the Professor, who acted as the "bank". The exact same strategy works for Player B. Therefore, they will both end up defecting and claiming 0. 3 each. This is called the prisoner's dilemma because both players are in a better status and will maximize their earnings if they choose to cooperate and will claim a significant difference of 0. 5 more if they do so over defecting. They will both benefit if they choose their nonequilibrium strategy, that is for them to cooperate (Poundstone, 1993, p. 107).
Player B's Choice
0. 8, 0. 8
0. 0, 1. 0
1. 0, 0. 0
0. 3, 0. 3
Player A's Choice
Figure 1: Player A and B's Choices in the Prisoner's Dilemma Experiment The undesirable outcome for both players is for one to cooperate while the other defects. The cooperating player will receive 0. 0 while the defecting player receive the highest outcome of all, that is 1. 0. Although the risk of getting nothing (0. 0) is higher if a player chooses to cooperate, if both players cooperate then they will be receiving a fair 0. 8 each. Both players will feel good The graph in Figure 2 shows that at first, there was an average (around 57%) number of students cooperating in the first round of the experiment. The percentage linearly fell to around 43% and 21% in the second and third rounds, respectively, and that is an expected change. Some of those who were cooperating did not gain because the other matching participant defected, and therefore that pushed th...