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Social dilemmas

In game theory, a social dilemma is a situation in which the members of a society or group can together create a common or public good of which they benefit more than they would benefit from the result of an action taken by a single member. At the same time, however, the costs for cooperation start to exceed their payoffs if only one or few others of the group, though consuming it, do not contribute to this good, i.e. if one or few members enrich themselves at the expense of others - they free ride.

From the stance of a homo oeconomicus thus, a social dilemma is a situation in which it is more profitable not to cooperate if not all other members are cooperating.

Since chances are high that at least some community members will try to free ride on the expense of others, the question arises how cooperation can emerge in the first place.

A simple example: splitting the bill

If five friends go to a restaurant, eat approximately same-priced dishes, and then decide to split the bill in equal shares, everyone derives a (in this case small) benefit, a commonly generated, i.e. a common good, from not tediously dividing the bill individually. Nevertheless, if only one of the friends orders a very expensive dish knowing that the bill is going to be split anyways, splitting the bill will turn unprofitable for the others.

Rationally, in this case the friends would rather decide not to split the bill, i.e. not to cooperate. A common good, representing a benefit to every participant, will not emerge.

A historical example: the stag hunt

In 1755, Jean-Jacques Rousseau published a book about the "origin and basis of inequality", describing a stag hunt, in which the hunters are only capable of killing a stag, a very fruitful food resource for all of them, when all the hunters keep concentrated and stay in their assigned position for the battue. A hare in contrast can also be killed by a single hunter, and would, even if inferior to a stag, ensure the livelihood of the single hunter. If a hunter spots a hare during stag stalking, he therefore has a distinct incentive to prefer the individual hunting success to the rather uncertain collective hunting success, therewith letting the stag hunt fail.

Since this holds true for all the hunters, chances for a cooperative stag hunt are low. Representing a common good, the stag brings a higher benefit, but the benefit is bound to the uncertain behavior of individuals, which, being insecure about the behavior of the others, have a high incentive to act "egoistically", and therefore rather sub-optimally.

Rousseau, Jean-Jacques (1964/1755): Discours sur l'Origine et les Fondements de l'Inégalité, Seconde Partie. Oeuvres Complètes (Jean Starobinski ed.), Pléiade: S. 166f.

What are common (or public) goods?

According to Hardin (1982), common or public goods exhibit two characteristics :

Non-excludability - potential users cannot easily (i.e. at acceptable costs) be excluded from the use of the common good. Examples: fresh air, public TV or radio broadcasts, or to some extent: information, knowledge.

Jointness of supply - the supply of the good is (most widely) inexhaustible. Free riding on a public radio broadcast does not diminish the pleasure of other listeners.

The ones who do not contribute to the creation or preservation of such goods, but cannot be excluded from its consumption, are called free-riders.

Hardin, Russell (1982). Collective Action. Baltimore. John Hopkins University Press.

The tragedy of the commons

"The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

  1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly + 1.
  2. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of - 1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another.... But this is the conclusion reached by each and every rational herdsman sharing a common. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit - in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all".

Hardin, Garrett (1968): The Tragedy of the Commons, in: Science, 162(1968):1243-1248.