Many economists know of the famous repeated prisoners’ dilemma experiments played by famous economists. I recently came across this old post from Brad Delong with an excerpt from Poundstone (1992) which recounts a game between Armen Alchian (who should win the Nobel Prize this year) and Rand economist John Williams. It includes comments in the margins from the players between rounds, and is therefore, well worth hitting on the link. Here are more links to Armen and his work:
- A Biography and another profile hosted at David Levine’s website
- Uncertainty and Economic Evolution: Essays in Honor of Armen A. Alchian (edited by John R. Lott, Jr.)
- A 2000 Liberty Fund interview by Daniel K. Benjamin in the Intellectual Portrait series
- Alchian’s collected works in two volumes
- Alchian’s “Property Rights” entry to the Concise Enyclopedia of Economics
- A profile of Alchian in the UCLA Daily Bruin in 2006
- My blog post making the case for a “UCLA School” Nobel Prize in honor of the contributions of Alchian, Demsetz & Klein
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Interesting.
Clearly JW was trying to maximize the joint payoff, which makes sense only if you he is being paid in dollars and is going to split them with AA after the game.
AA on the other hand was trying to maximize his own payoff and achieve a more equitable outcome by getting JW to sacrifice 2 points in order to give him one.
Since JW seemed to think he was playing plain-vanilla PD he totally failed to form any kind of theory as to why AA was acting as he did, and the result was disappointing for both of them.
(Of course he may not have been inclined to cooperate if he had, though research shows that even chimps are willing to pay a high personal price to punish unfairness in others, so he should have been aware at the very least).
On the other hand, since they had to spend a lot of points on learning the game, and operating what was essentially a very expensive telegraph, the outcome was not that bad.
So no, I don’t think JW was “the smart one”. As for thinking it is smart to understand “that it was the two of them playing the umpire” — that’s not smart, that’s dumb. The umpire is not an active participant in the game. AA was correct, he was playing against JW.