In this week's blog I'll be discussing "Prisoner's Dilemma" in real life situations such as, negotiating the sale of a used car I advertised on Craigslist, and negotiating a contract for snow removal for my place of business. Moreover, how does understanding the prisoner's dilemma help me in both scenarios?
In the first scenario, I am selling my car on Craigslist to a complete stranger and we both want to get the greatest satisfaction out of the deal. In chart (A), the satisfaction will range from 0-10, 0- being unsatisfied, and 10- being very satisfied. The prisoner's dilemma teaches me and the buyer that there are several outcomes to this scenario and we both want to be the most satisfied of the deal. However, what will be the best outcome? I obviously want the most money out of my car, so I can get the biggest profit from my car. On the other hand, the stranger from Craigslist wants to get the car for as cheap as possible, so he can get the "biggest bang for his buck."
Cooperation, in this scenario, is the stranger from Craigslist purchasing the vehicle at the list price posted and there's no negotiation. However, defecting in this scenario, is the stranger wanting a lower price for the vehicle. As shown in chart (A), both the stranger and I both agree on the list price, so we are both mostly satisfied (7,7). I am not fully satisfied at a (10) because if the stranger agrees to the set price, I feel I could have gotten more money for my car and vise versa for the stranger. Furthermore, if the stranger defects and I sell my car to him at a lower price, I will be very unsatisfied and he will be very satisfied (0,10). On the other hand, if I defect and stand my ground while the stranger wants less out of my car and sell it, I'll be very satisfied where as the stranger will be least satisfied (10,0). Finally, if we both bargain for a price and prolong the sale until we reach an agreement, we will be slightly satisfied. However, our low satisfaction is due to having to lower my price of my car and not having it as low as the stranger wanted to buy it for.
A.
In the second scenario, I'm negotiating a contract for snow removal for my place of business (which has a small parking lot and about 100' of sidewalk). In this scenario, the snow removal company and I are better off cooperating and agreeing on the original price of snow removal. It's respectable to have a good business to business model, as well as, I don't have as much negotiation to use for leverage. To simplify the situation, I can purchase equipment that will cost a lot of money up front, and plow the snow myself. This will leave me unsatisfied based on personal labor and cost. The other option being, to pay for the snow removal initially. Furthermore, if I try to negotiate price, we can both become agitated and be unsatisfied with the outcome. In this scenario its good to have leverage in negotiation and with it being a time constraint for my business to open, I lack the leverage needed to find another snow removal company.
However, in the first scenario, myself and the stranger from Craigslist both have room for negotiating. Even though it seems better for us both to agree on the set price and be mostly satisfied, its better for us to negotiate and defect since its a big ticket item. We will be less satisfied as a whole, but in the end it is the better option since there is room for negotiation on both parties. Where as for the snow removal scenario, negotiation isn't present for both parties and we are both better to cooperate.
Finally, the prisoner's dilemma shows that both options have different outcomes on relatively similar scenarios based on sales. Nevertheless, the more rational choice, based off the prisoner's dilemma model, both parties should defect in the Craigslist sale, and both parties should cooperate in the snow removal exchange.
