How to Build Cooperation

Can’t we all just get along?

No we can’t.  Not if we think we can win by screwing over the other guy.  We are all predators by nature (some of us more than others) and we do what we must in order to survive.

However, what this Nietzschean view misses is that altruism if often the optimal strategy.  Building cooperation is one of the most important skills professionals and companies can acquire.

Game theory and sociobiology offer us some guidance on how we can cooperate safely and effectively.

The Prisoner’s Dilemma

The classic model for thinking about cooperation is the prisoner’s dilemma, which is shown on the diagram below.

The basic narrative should be familiar to anyone who’s watched a cop show.  Two suspects are brought in and interrogated separately.

If they effectively cooperate with each other they will get off on a lesser charge and serve only two years.  If one defects, he will only get one year in prison while his friend gets a harsh five year sentence.  If they both defect, they will each get 3 years.

What’s interesting is that together they are definitely better off cooperating, but if each is following his own self interest the optimal strategy is to rat, which leads to the worst possible outcome: 3 years in prison each. (FYI: numbers vary in different versions).

Real Life Prisoner’s Dilemmas

What makes the prisoner’s dilemma so powerful is that it approximates very well what often happens in the real world.  Here are some real life prisoner’s dilemmas:

Price Wars: Two firms know they make more money if they keep prices high, but each wants to win market share.  So they both end up lowering prices and end up in cutthroat competition.

Corruption: If you spend time in developing markets, you find lots of corruption, but few people who consider themselves corrupt.  Rather, they point out that  the society is corrupt andrefuse to be fools.  This, of course, creates the corrupt environment that they hold responsible for their actions.

Laziness: In poorly functioning companies, you find a lot of laziness.  Why should one person pick up the slack for when nobody else is working hard?

Pollution: One company can reap benefits by polluting, while the costs are borne by society as a whole. This type of dilemma, which involves a whole population, is often called the tragedy of the commons.  Economists refer to it as an externality.

Tribes and the Selfish Gene
Richard Dawkins has pointed out that although genes don’t really have motivations, it’s often useful to treat them as selfish.  After all, genes that survive will propagate and those that don’t will die out.  So thinking of them as selfish is a good way to think about how evolution takes place.

His framework goes a long way towards explaining altruism and cooperation.  For if we can benefit the genes of our relatives, we are also helping propagate the genes we share with them.  That’s what makes tribes such powerful motivators.

In professional life, we also form tribes.  We share traits (although memes, not genes) with those in our professional classes, our departments, companies, industries, etc.   Memes are just as selfish as genes, and we will protect those that share our cultural and professional traits.

Dunbar estimates that these tribes are most efficient if they number 150 or less, but experience would seem to show that the concept applies to larger populations.  Marketers go to war with engineers, digital media with traditional media, etc.

Tribes can be especially problematic because, although they promote cooperation within the tribe, they also make battles much larger and more deadly.  As I’ve pointed out, people will go to great lengths to support their tribe and protect its beliefs, in defiance of any logic or fact pattern.

Why All Tourists are Suckers

The most powerful incentive to cooperate is to gain cooperation in return.  If we are involved in a series of prisoner’s dilemmas, we will be more likely to cooperate in order to gain cooperation in future games.  An ongoing relationship fosters honesty and trust while a limited engagement encourages defection.

What if we knew we were playing 10 games?  It would make sense to cooperate for 9 but cheat on the last one.  However, if both players know that, then the 10th game is moot, making the 9th game effectively the last one.

The same logic would hold for the 8th and eventually work back to cheating in the very first game.  This is called the backward induction paradox.

Since ancient times, ostracism has been used as a negative incentive for cooperating in society.  Criminal gangs are well known for using lifetime membership as a method for enforcing norms.   Once a relationship is limited, it is likely to sour.
Tit for Tat

The closest thing to a solution to the prisoner’s dilemma is a strategy devised by Anatol Rapoport called Tit for Tat.  In computer simulations it has been shown consistently to be superior to anything anybody has been able to come up with.

The scheme is simple.  You just replicate your opponent’s last move.  Cooperation brings cooperation and defection brings defection.  Tit for Tat has three attributes that make it so successful:

Retribution: There is a clear penalty for defection.  So whatever an opponent will gain from not cooperating he will pay for in the next game.  If he knows this (or figures it out along the way) he will be more likely to cooperate.

Forgiveness: No matter how many times the other player defects, he will see the benefits of cooperation very quickly.  Variations where a defection brings a two defections in retaliation instead of one don’t perform as well.

Clarity and Consistency: The rules are simple, straightforward and always the same.

Building Cooperation

Just like in the prisoner’s dilemma, we are better off when cooperation reigns than we are in a Hobbesian world of treachery and deceit.  Yet merely wishing it so won’t make it happen.  However, there are some strategies that can make it more likely:

Create Reasonable Expectations of Future Interaction: As we saw with the backwards induction paradox, tourists are suckers because they are unlikely to be seen again.  Therefore, there is little chance of retribution.  Usually the optimal strategy is to cheat them.

This is one of the things that make brands so powerful.  Brand investment implies continuity, which means that the merchant will want to sell you something in the future.  Therefore, cheating you wouldn’t be smart.  They would not only risk losing you as a customer, but undermining their brand investment.

Publicize Behavior You Want Imitated: One thing the prisoner’s dilemma misses is the possibility of mixed signals (nobody wants to go to jail).  If you want cooperation, it is important that you make your preferences clear.

We can clearly see the implications of mixed signals in the latest financial crises.  It’s shouldn’t be surprising that avarice reigns in an industry that romanticizes Gordon Gekko.  Is there a clear model for how we want Wall Street to behave?

Build Interdependence: As we have seen, tribes can be extremely potent motivators.  We tend to be very willing to sacrifice for what we see as integral to our nature.

Wait staff commonly pool tips in restaurants.  I have found that it’s often best to index bonuses on group, rather than individual, performance.  Forging a group identity is the surest way to create a cooperative environment.

Cooperation cannot be built through good intentions or platitudes.  It must be erected on a solid foundation of long term viability, clear signaling and mutual interests.

– Greg