Gra, in which everyone loses - what you need to know about the prisoner's dilemma?

Why Do Smart Decisions Sometimes Lead to Bad Outcomes?

The Prisoner’s Dilemma is one of the key concepts in game theory that explains the paradox of the modern world: even when everyone would benefit from cooperation, rational participants sabotage themselves. This is not an abstract puzzle — we observe this principle in the market, in politics, and especially in blockchain ecosystems and cryptocurrencies.

How does it work in practice?

Imagine two suspects being interrogated in separate rooms. Prosecutors play on their fears, offering each a one-sided benefit: if you betray your partner and confess, while he stays silent — you go free. The problem: he thinks exactly the same way. The result? Both confess, both get sentences. And if both stay silent, they would receive minimal sentences. Everyone loses.

The mathematics of this scenario is undeniable. Each side analyzes its options: confessing guarantees a better outcome than remaining silent, regardless of what the other person does. This dominant strategy leads both parties to mutual confession — known as Nash equilibrium, where no participant wants to unilaterally change their decision. The problem: this equilibrium is worse for both than cooperation.

Where do we see this in the real world?

Business and competition: Two companies might lower prices below profitability instead of jointly setting higher margins. Each fears that if they don’t, their partner will crush them with competition.

Climate and ecology: Countries know that a joint reduction of carbon emissions would be beneficial for all. But each waits for the other to start — and no one invests. The planet loses.

Blockchain networks: Validators can choose between supporting network decentralization and maximizing their own rewards. The network prefers the first option, but individual incentives often lead to the second.

How to escape the trap?

Communication and trust change the game. When participants can talk and build bonds, the willingness to cooperate increases. In cryptocurrencies, this is precisely what motivates community building.

Repeated games teach cooperation. If you play the prisoner’s dilemma hundreds of times, a “tit for tat” strategy emerges: start with cooperation, then mimic your partner’s previous move. Players quickly learn that cooperation pays off in the long run.

Rules and penalties work the slowest but are the most reliable. Legal agreements, smart contract codes, network protocols — all force participants to cooperate through the costs of betrayal.

Summary

The Prisoner’s Dilemma is not just an academic problem — it’s a map of the terrain we must read: in corporations, regulations, and especially in decentralized networks where no one holds a gun to your head. Understanding this dilemma is the first step toward designing systems that promote cooperation instead of sabotage. In the cryptocurrency space, where each player has almost unlimited freedom, mechanisms to overcome the prisoner’s dilemma become the cornerstone of a successful protocol.