The Prisoner’s Dilemma in Business

When to cooperate and when not to, on the work floor.

Patrick Heller
4 min readDec 12, 2022


Perhaps you’ve heard of the term “Prisoner’s Dilemma”, but maybe not in relation to a business environment. Find out about the prisoner’s dilemma, the iterated prisoner’s dilemma, and how to link them to stakeholder management.

In social psychology, a small hypothetical story is used to point out a situation that occurs quite often in our daily lives, not in the least at work. The story goes as follows. Two bank robbers manage to steal a hefty sum of money from a bank and are able to hide the loot before the cops capture them both.

The police don’t have that much to go on, since they have the bank robbers, but not the money. The robbers are held for questioning in separate cells. Then the police questioner plays a devious game on them.

Both are proposed that if they tell on their mate, and their mate does not, they go free immediately and their co-robber will be imprisoned for 20 years. If both tell on each other, their prison sentence will be short but substantial, 5 years. And if neither one turns their back on the other, the evidence is mostly circumstantial and they will both have to serve 1 year in prison.

The prisoner’s dilemma is then, will I cooperate with my friend, or will I defect and try and save my hide — with the risk attached that my friend does the same? What if I cooperate, and my friend defects? That would be really terrible! What are the odds? There is no real solution to this dilemma.

At work, you might encounter the prisoner’s dilemma as a manager, for instance, when there is an organizational overhaul taking place. When the budgets are to be (re-)distributed, do you go for what’s good for the company, or do you go for what’s good for your department? Do you cooperate with other managers, or do you defect and hope they won’t do the same?


A one-time prisoner’s dilemma is a truly nerve-wracking predicament. Things change, however, if you face the same prisoner’s dilemma over and over again. Think, for instance, of the stakeholders of a product that you make.

In a modern environment, you probably work in iterations — like Scrum Sprints of several weeks. With each new iteration, the stakeholders get to exert their influence on the backlog for the product. If they could express their desires only once, that would entail a single prisoner’s dilemma, but now it has become an iterated prisoner’s dilemma. What do you do in terms of cooperation or defection if you knew you would face the other parties involved in a couple of weeks’ time again?

Ukranian-American mathematical psychologist Anatol Rapoport (1911–2007) came up with an elegant and simple solution to the iterated prisoner’s dilemma around 1980, taking part in the Axelrod Tournaments, which focused on cooperation and were highly influential on game theory. Rapoport’s strategy is called tit-for-tat and works like a small computer program:

1. In the first round, cooperate.

2. In every next round, do whatever the other party did in the previous round.

So, let’s say, in the first round, you cooperate and the other party cooperates too, that means you will cooperate in the second round as well. If the other party then defects, you will defect the third round — otherwise, cooperate again. The solution is elegant because it starts from a point of good will, but is no sucker if the other party is of ill will.

In the case of the stakeholders at work, if they learn of this elegant little strategy called tit-for-tat, they might be inclined to start out in a cooperative mode, and mood. In a situation where resources are scarce, the willingness to cooperate and let others have a fair share of the work capacity will in the end be the best solution for the organization overall.

If you are interested in stories like these and more, you can buy Essential Psychology for Modern Organizations from Amazon and other bookstores:

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