So, I’m starting this post with a a bit of a back story. I’ve been a bit busy the last couple of weeks working on a presentation that I gave at the I-many summit on Game Theory and Contract Theory. I’ve done quite a bit of reading for it, thanks to my buddy Mike Yu, who helped with a good syllabus given by one of his old professors on Game Theory. I also read some rather challenging books on how to optimize contract theory problems. It went quite well, with one dissenting comment amongst the overwhelmingly positive comments. I’ll try to see what I can do to get a link of the presentation onto the blog (Accenture own the IP on it).

One thing that went really well for me, was a game I played of the IT Contractor’s Dilemma, which is essentially a modified version of the prisoner’s dilemma in which the payoffs are monetary concerning defection or cooperation on the scope of a project as seen from the Business User and IT contractor’s perspectives. The game itself, aside from a couple of people who were struggling with it, really resonated with the attendees. For those unfamiliar with the prisoner’s dilemma it goes like this.

Two prisoners are suspected of a crime, they are separated by the police, and the DA comes in with two options for each of them, either confess or stay silent. If they both stay silent, they each get a year in prison. If one stays silent, and the other confesses, the one who confesses walks free, while the one who stayed silent gets 5 years. If they both confess, they each get 3 years. The optimal strategy for this game is to confess (known as defection) rather than stay silent (known as cooperation) as no matter what the other prisoner does its always a better outcome for the prisoner who confesses.

The second form of this game is known as iterative prisoner’s dilemma (IPD). In it the same game is played over and over again. The optimal strategy for this game is to first cooperate, and then go tit for tat, so that whatever your counterpart did in the previous round, you do in this round. This prevents you from being taken advantage of, but also allows you to reap the rewards of a cooperative counterpart.

Dan Ward took IPD and applied it to the interactions that the Government and Contractor’s have with one another in reference to the scope of the project. His insight was that one is to always cooperate, since in real life good will is accounted for, and this alone makes it worthwhile from a common good perspective. Interestingly this aligns with the empirical evidence of how people actually tend to play the game.

I was definitely intrigued by this as it seemed to have real applications to the way consultants interact with their clients. The situation is nearly identical. So my question is what to do when you cooperate, and your counterpart defects on you? Dan and I agree on this point, in that we both feel the only real option for you and your organization is to walk away, and deal with an alternative business partner.

Wikipedia Prisoner’s Dilemma Entry