Book Review - Prisoner's Dilemma

What links the H-bomb, playing chicken and the Cuban missile crisis to game theory?

The answer, according to William Poundstone, is the famous game called the prisoner's dilemma (see here for a fun example). His 1992 book Prisoner's Dilemma is not recent (I was a toddler back then) but is still both fascinating and relevant.

Poundstone's approach is to carefully weave together a biography of John von Neumann and a potted history of the nuclear arms race with examples of fun games. The end result is an utterly gripping read (between you and me I read it in lectures) that never fails to surprise (whether you be an economist or normal).

So as not to ruin the book I'll only share one example of H-bomb game theory...

First, read this fun example of a brilliant game to play with your friends.

Now, the 'Dollar Game' is special because it induces buyers regret. Those who bid inevitably wish they hadn't! There is a rapid escalation. Before we know it, both bidders are wishing they were back where they started. But they always have an incentive to go one higher. They do not want to be left in second place. This is not dissimilar to the nuclear arms race.

The analogy starts with America building the A-bomb at the end of WWII. Understandably, Russia could not contemplate being out gunned so they got one. So the USA understandably got more A-bombs. So did the USSR. So America built the H-bomb. So Russia did too. And so on. The starting position led to escalation and both states ended up in a worse position than at the start when neither had any nuclear bombs: They had spent a lot of money on no tactical advantage. If they had coordinated they could have stopped at some point (i.e. just having one A-bomb each). Sadly for both nations this was never likely to happen.

In fact, the more Poundstone delves into the cold war the more analogies crop up. Coincidently (or not) the people who originally created game theory, such as John von Neumann, also created the bomb.

I highly recommend you read Prisoner's Dilemma so that (if nothing else) you can start to see real life conundrums through game theory spectacles, and what spectacles!

Genre: Economics/Behavioural Economics
Accessibility: 10/10
Accuracy: 9/10
Readability: 9/10
Usefulness: 7/10
Verdict: Very, very interesting!