Games Students Play:

Incorporating the Prisoner's

Dilemma in Teaching
Business Ethics

ABSTBJVCT. The so-called "Prisoner's Dilemma" is

often referred to in business ethics, but probably not
well understood. This article has three parts: (1) I
claim that models derived from game theory are
significant in the field for discussions of prudential
ethics and the practical decisions managers make; (2)
I discuss using them as a practical pedagogical exercise
and some of the lessons generated; (3) more speculatively, I suggest that they are useful in discussions of
corporate personhood.
KEY WORDS: classroom exercise, decision, experiential learning, game theory, negotiation, pedagogy,
prisoner's dilemma, prudential ethics

Introduction
Game theory might be better called "strategy
theory" because it deals with choosing options
in the absence of sure knowledge about the
actions of others. First, numeric values are
assigned to possible choices. Then, a rational plan
can be developed based on ranking the outcome
scores. It may be applied whenever there is: (1)

Kevin Gibson

a social interaction between two or more

decision makers; (2) the outcome depends on the
choices of all the players; and (3) every player has
preferences among the possible outcomes.' Such
games are extremely popular with social scientists and economists, among others, since they
give simple ways for subjects to be placed in
various sorts of interdependence and yield
objective, quantitative data.
In this paper, I wiU briefly outline a few forms
of two-party games and show some of the
dynamics they illustrate. Secondly, I will describe
using a game in a classroom setting and some
typical student reactions. Finally, I make the case
for applying games in the classroom setting. I do
this by suggesting there may be a valid form of
prudential ethics (if not for humans, then for
businesses), and by making the claim that, even
if ethics has no prudential element, it is still
important for us to recognize and appreciate the
dynamics at work in game theory.

Two-person games

Foremost in the literature is the so-called

"prisoner's dilemma" that matches personal gain
against mutual benefit.^ The story goes that two
prisoners are separated and given the chance to
cooperate with the authorities by confessing.
This sets up a two-by-two matrix, where both
appeared in the Journal for Business Ethics, Business confess, both remain silent, or one confesses
while the other keeps quiet. If both refuse to talk,
Ethics Quarterly, Teaching Business Ethics,
then they both go free. If one confesses while the
Business Horizons, the Journal of Applied Ethics,
Organization Science and the Harvard Negotiation
other doesn't, then the cooperator gets off lightly
Journal.
and the non-cooperator gets a heavy penalty. The

Kevin Gibson is an Associate Professor of Philosophy and

Director of the Center for Ethics Studies at Marquette
University. His research interests include business
ethics, negotiation and alternative dispute resolution,
with special interests in stakeholder theory, corporate
personhood and moral accountability. His work has

Journal of Business Ethics 4 8 : 5 3 - 6 4 , 2003.

2003 Kluwer Academic Publishers. Printed in the Netherlands.

54

Kevin Gibson

worst mutual outcome is if both confess, and

both get sentenced. This could be represented
numerically:

Confess
Keep Quiet

Confess

Keep Quiet

-1,-1
- 2 , +2

+2, - 2
+ 1, +1

If a rational prisoner had full information and

trusted the other party, he or she would realize
that the obvious choice with the best overall
outcome is to remain quiet. But in the absence
of such information and trust, and with the
realization that the other prisoner also has
choices, the decision moves from maximizing
benefit to minimizing harm, in which case she
should confess quickly. A shrewd, amoral
prisoner might do the best for himself by
promising eternal allegiance and then defecting
as quickly as possible. The desirability of payoffs
for A is first, mutual silence, but if not that then
confessing while his partner stays silent, then
mutual confession, and the last thing he wants is
to remain quiet while being implicated by his
buddy. In game theoretic terms, confessing is the
dominant strategy because he is better off
choosing it regardless of his partner's choice. The
same is true, of course, for the partner.
Paradoxically, if they are both rational, they
would both confess rather than stay quiet, which
dooms them to jail rather than walking free.
The rational and ethical become mixed when
we use language like "cooperate" or "defect"
since it assumes a relationship between the
parties. There has been some discussion about
whether the background narrative already
assumes too much (such as the institution of
imprisonment and tangible benefits of confession), but nevertheless, once described, these
dilemmas become, apparent in both our everyday
and business lives.
For example, the New York Times (July 9th
2002) reported that several airlines had increased
leisure fares by $20, only to reduce them later
in the day when it became clear that Northwest
would not do the same. Airlines cannot officially
collude, but can certainly send signals into the

market and get a rapid response. If aU the airlines

had increased fares, then they would all reap
more profits, but if they act individually then the
maximum benefit will go to whoever defects
first.
The same sort of dynamic occurs with
common goods, such as international fishing
grounds. If they are being overfished, then it
would be reasonable for all the fishing fieets to
agree on a system of self-restraint. In the absence
of strong regulation there is a temptation to break
the agreement and do what is best for you alone,
but that would only be successful if everyone else
complies with it. If aU parties make an agreement
and then routinely ignore it, then everyone's
livelihood will eventually suffer.
The basic prisoner's dilemma as posed is
relatively simple. It has the pedagogical benefit
of forcing players to choose from a finite set of
options and stimulating a discussion that dwells
on the dynamics of the game without becoming
bogged down in the particulars of the narrative.
StiU, we should recognize the potential richness
and sophistication of these simulations.

Preference ordering

In a purely competitive zero-sum game

[Defect/Defect, or D/D], a benefit for one side
will necessarily lead to a loss for the other (that
is, +1 is always accompanied by - 1 , hence a 0
result) and there will be no motive to cooperate.
While these have some interest in negotiation
studies, they are not very fertile for business
ethics. Similarly, in a pure coordination game, the
desired result coincides exactly [Cooperate/
Cooperate, or C/C]. The prisoner's dilemma is
actually a specific case of a mixed motive game,
where sometimes it is rational to cooperate [C]
and sometimes it is rational to defect [D]. But
not all mixed motive games are prisoner's
dilemmas. Whenever there is a temptation in a
mixed motive game to defect when either the
other cooperates [the "squealer" DC is better (>)
than CC] or defects [DD > CD] (where mutual
defection is preferable to the "sucker" result),
there will be a range of preferred outcomes,
which have been given individual labels.^

55

Games Students Play

DC>CC>DD>CD
DC>DD>CC>CD
DC>CC>CD>DD
CC>DC>DD>CD

Prisoner's Dilemma
Deadlock
Chicken
Stag Hunt

Deadlock. Deadlock occurs when the partners

decide that they prefer mutual defection to
mutual cooperation. For example:

Cooperate
Defect

Cooperate

Defect

1, 1
3,0

0, 3
2,2

The cardinal issue is that although they would

like to gain, mutual defection is not a great
problem and, in fact, gets them an outcome
preferable to cooperation. This occurs when
neither side really wants to cooperate - they are
either happy to stay where they are or to have
the other side change its stance, but aren't wiUing
to budge at aU. Echoed in business and politics,
this is a useful but limited lesson to dramatize.
Stag hunt. The dynamics of the stag hunt are that
the individuals initially cooperate toward a goal
that none of them could attain alone. Along the
way, though, one side sees a lame rabbit that
would be an easy personal victory, but it would
mean dropping out of the mutual enterprise.

Stag
Rabbit

Stag

Rabbit

3,3
2, 0

0,2
1, 1

Chicken. The challenge in Chicken is to be as

close to peril as possible, especially in competition with someone else. It is "brinkmanship"
where the dare is to go as near the edge as
possible to show the opponents you are wiUing
to risk all in order to beat them. The classic case
is where American teenagers in the 1950s would
drive cars at each other on a coUision course. The
loser swerves off first, allowing the winner to
keep going straight. One way to win the dare is
probably to make a big show of throwing the
steering wheel and an empty whisky bottle out
of the wfindov^ at the beginning of the run, thus
demonstrating full intent and a certain recklessness. Honor may be lost if one or both sides back
down from the challenge, or swerve very early.
Yet the worst mutual outcome is for neither side
to swerve at all, and the zero in the payoff scale
could easily be a very large negative number.
Swerve

Straight

2,2
3, 1

1,3
0,0

Swerve
Straight

In business terms, this may be seen as the

equivalent of playing "hardball" or bluffing. If
the posture succeeds, it may have handsome
rewards. Conversely, though, if the bluff is called
or a deal falls apart, then we are left with no
deal (and potentiaUy no future deals) in a situation where it would be appropriate. Adversarial
positions in coUective bargaining have often taken
this form, even to the point that businesses have
ceased operations when stiU viable.''

Asymmetrical dilemmas

Mutual cooperation will yield the greatest

benefit, and the temptation to go it alone only
emerges if there is a feeling that the other side
will do the same, or, if the group is sufficiently
large, it is likely that there will be someone who
will go against the grain. In effect, it demonstrates the problem with poor teamwork, since
everyone is better off doing their own thing if
there is not complete unanimity of purpose.

Again, for pedagogical simplicity it is useful to

have payoffs that are symmetrical and know^n to
be so to both parties. The payoff box nominally
captures the utility for each side, but in reality
there will be a wide variation in both the value
of the payoff amount (a rich person could more
easily walk away from a minimal benefit than a
poorer one, for example) and factors like time
sensitivity and competitiveness. There are cases

56

Kevin Gibson

where it is instructive to see that parties may have

difFerent preference orderings.
One such case, noted by Poundstone, is the
Biblical dispute over the maternity of a child.^
Two women claim the same child, and King
Solomon suggests splitting the child in two. The
choices for the women are to stand firm (defect)
or give in (cooperate). The real mother wants
to stand firm on her claim, and have the imposter
acknowledge her deceit. But her worst outcome
is chicken, since if neither backs down, then the
child dies. On the other hand, the imposter is
playing a deadlock game: she wants to keep the
child, but would rather the child were kiUed than
be handed to the real mother. Because the
imposter has the power that comes with indifference to the outcome, she can effectively win
by bullying - in any case, she can stand firm with
relative impunity. When faced with this posture,
the only rational thing for the real mother to do
is to capitulate. In the story. King Solomon
realizes that the true mother is the one who
would give up her child to save it, and he judges
accordingly. For our present purposes, game
theory shows that there are rational decisions to
be made, and they rely criticaUy on an assessment
of our preferences.^
The prisoner's dilemma

in the classroom. T h e

question at hand is whether using game theory

has any bearing on teaching ethics, specifically,
business ethics. My experience is that it can be
an important tool which students find to be
challenging and enjoyable.
I believe that there are at least three ways in
which it can be pedagogically useful: First, by
raising awareness, with the assumption that when
people realize the dynamics of the dilemma, they
will become more aware of how pervasive it is,
and take a more rational approach when they
confront it. Naturally, posing the issue will also
spark challenges of the is/ought variety following
Hume, who famously noted that the facts about
our behavior do not necessarily lead to authoritative prescriptions.''
Secondly, it puts the issue of whether there can
be a prudential ethics front and center. One of
the clear lessons of the dilemma is that one can
do well by doing good. People realize that acting

"ethically" will lead to long-term benefits for

themselves. Essentially, this is a lesson in benign
self-interest, and thus has normative implications.
Some would contend that prudence plays no part
in ethics, but others will assert that it is the very
foundation of business ethics, since businesses
need to be convinced that there will be some
payoff for their actions.
Thirdly, the dilemma is descriptive since it
demonstrates the sort of position in which people
or businesses find themselves. It is then assumed
that they will act like rational prisoners. This is
the sort of claim made by David Gauthier (1970)
about ethical action in general, or by Peter
French (1991) and Peter Danielson (1992) about
the moral behavior of business. The accuracy of
the analogy to the dilemma will also give indications about how parties with confiicting
interests will react, as well as what is their best,
rational strategy to maximize their individual or
mutual benefit.
A typical case. Games in the classroom will suffer
from being artificial and compressed. Thus, there
is a tendency for students to treat them as games
rather than exercises. It is of great importance at
the outset to let participants know that they
should take the exercise seriously, that they
should bargain in earnest, and that they will be
assessed on how well they do. They are broken
into teams, and teams are paired off, so that they
recognize that each individual team is dealing
with only one other person throughout, and the
actions of any other participants are immaterial.
The intragroup dynamics represent real decisionmaking bodies, such as a board, and provide a
discussion point at the end of the exercise. If
space allows, the two teams may be separated.
Everyone is then provided with a narrative that
will set a symmetrical payoff matrix. Words like
"competition" and "opposing party" are best
avoided since they tend to impose strategies that
may not arise spontaneously. Generally, the
instructions tell participants to focus specifically
on maximizing their own outcomes.
A typical narrative might involve, say, petrol
stations operating on opposite corners of an
intersection. Both are franchise operations and
reset their prices each week. Customers are price

Games Students Play

conscious and fickle, and the profits depend

directly on the price the station sets. If both
stations have identical profits, then they will both
make $1200 profit every week. If one station cuts
its price and the other doesn't, then the increased
sales of the lower priced petrol will bring in
$1600, and the higher priced station will make
only $400. But if both stations cut prices, each
station wiU only net $800.^
The dilemma is usuaUy given in iterated form,
so that there are repeat encounters with the same
side with known payoffs. This leads to participants deciding not only on an initial strategy, but
also on how they wiU react to moves by the other
side. They have to decide on an opening posture:
If both sides cooperate, then they have done weU,
but need to sustain their relationship against an
ever-present temptation to defect for a "quick
buck." If one or both sides fail to cooperate, then
there is a real problem of how they can move to
cooperate. Presumably, if we were, as Rawls
(1971) suggests, rational and risk averse, then
once we realize the dynamics involved we would
identify and adopt an appropriate strategy of
long-term cooperation given the payoff matrix
above. In my experience, this rarely happens.
Sometimes, although rarely, participants fail to
notice that cooperation over repeated plays is the
best approach. But even when they determine an
optimal strategy the parties routinely defect on
each other. When allowed to negotiate they
routinely lie about future intentions and individual short-term gains are taken as the gauge
of success, even if the instructions explicitly
demand long-term maximization. After a
number of rounds, the class is reassembled and
totals tabulated for each pair of teams. Given the
nature of a prisoner's dilemma, even cooperative
groups have been tempted to defect. Hence it is
rare for groups to have maximized their potential returns, and often they have migrated to
mutual defection. This is highlighted when there
are a finite number of interactions. Why does this
happen?
One reason could be akrasia weakness of the
will. We may intellectuaUy realize what is best,
but our emotions or greed take over. While this
could account for some of the results, it is
perhaps too simplistic an explanation.

57

Another reason could be a version of the

"surprise test" paradox. There, students are told
that there will be a surprise test by Friday during
the next week. They reason that it wouldn't be
a surprise if it came on Friday itself, so it wiU
have to be between Monday and Thursday. But
then it can't be held on Thursday, since that
wouldn't be a surprise now either, and so on,
until it is impossible to have a surprise test at all.
In an iterated game played by students, they
realize there wiU be a finite number of rounds.
In the last round it is irrational to cooperate,
since they can achieve maximum individual gains
without reaping the penalty in further play. But
if both sides think alike, then they believe that
neither will cooperate in the final round, and
therefore the appropriate place to begin defections is in the penultimate round, and so on, until
it makes sense to defect as quickly as possible.
A further possibility arises from what might be
called the " 'scape whipping" problem. (Hamlet:
"Use every man after his desert, and who should
'scape whipping?") Players reason that they are
fallible human beings who, although trusting,
may not always be trusted. Extrapolating from
their own temptations, they project these onto
the other party, which leads them to take the
least vulnerable path.'
There is often a "signal/noise" issue, too, since
players have little substantive information about
the other's actions except the result with which
they are presented. Players will interpret the
other's actions in various speculative ways and
may weU excuse their own actions by identifying
superficial signals ("he was smiling at me when
we talked") as substantive and pernicious.
Non-cooperation is also the stance that makes
players least vulnerable, and they often report that
they are willing to forsake gains because they
didn't want their opponent to take advantage of
them. This is reminiscent of a psychological test
which tells participants that they can have $10
between them if they can agree on a division
within a rainute or two. If someone is offered
something other than a 5/5 split - say, 9/1, then
they will often refuse to agree, although
rationaUy they should take something rather than
nothing.'"
Some participants report that once they were

58

Kevin Gibson

ahead, they needed to stay ahead, and in so doing

gave up greater gains. This effect has been
described as the "Red Queen Paradox."" In
Alice's Adventures Through the Looking Glass, the

Red Queen grabs Alice and runs with her

constantly yelling "Faster! Faster!" It takes all the
running you can do to keep in the same place.
Because everyone else is running, the Queen
fears that if she stops, then she will fall behind.
However, if everyone stopped running, then she
would, at worst, remain where she was. Utility
is wasted in the competition; it has no benefit
other than providing an institutional context
where everyone is afraid that they will be hurt
if they stop. Another common result is that
participants ignore the injunction to concentrate
on their own profits, and instead become
obsessed with merely doing better than others.'^
It is useful to play out the game, if only to
see the dynamics that players get into and how
these reflect their "real life" experience. Given
the setup of a prisoner's dilemma, cooperation
can be a very rewarding experience. However,
players who start noncooperatively (and it is an
interesting discussion point to explore why they
do so) and those who move to noncooperation
will find it difficult to change their posture.
Typical debrief questions might include:
How the starting price affected the final
outcome.
How emotions of both parties contributed
to the process.
How information is critical, and how it is
collected and assessed.
How easy it is to get involved in an
"auction dynamic".
Whether you can trust someone who
doesn't have your interests at heart.
How rational the group was in making an
initial bid and in its overall strategy.
Some lessons from the classroom.

O n e way to

understand why the dilemma is actually a

dilemma rather than a rational exercise is to
recognize that one of the key variables in determining one party's actions with regard to the
other is the degree of information and trust. If
both sides had instant access to the other's dis-

cussions, or knew that failure to cooperate would

result in prolonged torture, then choice is effectively foreclosed. On the other hand, the communication of information and bestowal of trust
on others is not a purely rational action, and
indeed is probably best considered value-laden.
This opens the door to non-rational factors such
as emotion and intuition.
A standard criticism of using prisoner's
dilemmas in business ethics is that it is an exercise
in costs and benefits, whereas ethics is the
province of the normative, that is, the "is/ought"
assertion that factual claims ("stealing is wrong")
do not necessarily lead to normative ones ("you
should not steal"). Some, like Robert Solomon
(1999), dismiss game theory as missing the point
because it looks at individual benefits rather than
focusing on the development of personal and
corporate virtues. I believe this claim is overdetermined: Even if one does not believe in
prudential ethics, it seems there are significant
lessons to be learned from game practice that
is, what typically happens when groups play
iterated dilemmas or other games. Some participants wiU take an openly "moral" stance and say
that they would not go against their word in
negotiations because no reward would justify a
lie. Still, many do compromise their everyday
ethics and act contrary to what they usually
espouse. Some of the psychological forces at
work present interesting discussion points, since
they promote behavior at odds with what
participants know they should do. (Perhaps an
"ought/is" problem?). Heuristics and biases may
lead individuals to buy products they don't want,
and temper their conscious awareness of what is
correct. In a prisoner's dilemma they often come
into play, and form the basis for discussions of
the interplay between the rational, the normative, and infiuenced behavior. Notably, the game
is best played in groups where the participants
get to discuss their strategy along the way, and
the intragroup dynamics are worth analyzing to
examine compliance and excuses within a team
setting.
Discussion points. A debrief of the game will not
only involve the internal dynamics of how players
selected and developed their strategies, but also

Games Students Play

some background assumptions and conceptual

issues.
Evidently games have numeric values as their
stock in trade. This will bring up the question
of w^hether such valuations can be made, and if
they have any validity. So, for example, students
may question if it makes any sense to assign value
to liberty or various aspects of welfare. A standard
response from the business school would be that
not only are they valid, but we do them all the
time. We make trade-offs about convenience and
money (fiying or taking a train, perhaps) and we
have a system of monetary compensation for
accidents and injuries. If students suggest that,
say, we cannot assign value to songbirds or
sunsets, then they have to explain a sense of value
at all, especially when others might say that there
is, in fact, a figure that people would agree to
pay to forgo having pollution deadly to wildlife
or dense smog obscuring the view.''' In short,
students will face the countervailing claims of
instrumental and intrinsic values. As an associated point, they will have to take a position on
whether, for example, loyalty and trust can be
taken as commodities, that is, marketable with an
exchange value.
Certainly since Plato, and emphatically with
Hobbes, there has been the question of whether
one should do good out of self-interest. Some,
like Tom Beauchamp (1982) have strongly argued
against prudential ethics, saying that, however
long-term or distant, any action motivated out
of self-interest will not qualify as moral. I will
not argue these claims at any length, except to
say that I think prudence does play a role in
business ethics, and suggest that there may stiU
be significant lessons from game theory even for
deontological or virtue-based approaches to
business ethics.
Economists often equate rationality with
prudence, and games give students the opportunity to test that assumption. For example,
Kantian ethics represents rationality par excellence,
since to become a moral agent one acts according
to maxims that can be consistently generalized,
and individual welfare maximization is clearly not
part of the picture. The Kantian faced with the
initial prisoner's dilemma is confronted with the
choice between (a) both prisoners confessing and

59

(b) both keeping quiet, since the maxim has to

be generalizable to the other prisoner. It is
apparent to students that choice (b), although
rational, may not be prudent. Indeed, if one has
an agreement with the other prisoner to keep
quiet and trusts her to do so, it is prudent (at least
in a single play-game) to betray her.
An assumption embedded in the game is the
neo-classical economist's view that behavior is
motivated by individual self-interest. At the end
of the game, though, "winners" who have acted
out of rampant self-interest are rarely congratulated by their peers and often are in the position
of defending their actions, which initiaUy appears
paradoxical. One explanation that is worth
floating with students is whether the economist
is correct, and whether there are other individual
or cultural assumptions, such as the nature of
rationality or intuition which may be embedded
in the way the game is played out.
The critical element for a Kantian in the game
is consistency in terms of the reasons for action.
That is, either (a) or (b) would be ethical if the
player was sure of what the others' choice would
be in the same circumstances. Choice (b) appears
the better policy for both prisoners, but it cannot
be derived from Kantian deontology. The notion
of "better" here is a function of rule-utilitarianism thought of as a criterion for optimal policy.
Students typically conclude that this kind of
rule-utilitarianism may be prudent for individuals in the long run. This may turn out to be the
case, but teachers should emphasize that this
result is an empirical fact rather than a normative prescription. EssentiaUy part of the tension
that students feel at the end of a game and a key
lesson is that whether they are drawn to optimal
outcomes in a utilitarian sense or rational policy
from a Kantian view, neither wiU be necessarily
equivalent to individual prudence.
The game demonstrates that prudence does
have a motivating role in ethics for many people
and, I suggest, the majority of businesses.'* The
payoffs may be more or less immediate.
Interestingly, though, they may also be hypothetical: We can think of a person who leads an
exemplary life, but is motivated by the thought
that there is some celestial leger where every
thought, word and deed is recorded. From our

60

Kevin Gibson

earthly perspective, the person acts like a saint,

and is indistinguishable from a deontological
altruist. Now, it is plausible that our saint is
mistaken, and it turns out there is either no
hereafter or no leger. But it does not matter
whether, in fact, the eternal rewards exist. What
does matter is that the individuals involved have
faith that there is a reward, and act accordingly.
The question is whether we should say the
person was unethical because they were motivated by the (unproven) payoff.
Using the same thinking, the claim that businesses doing good wiU result in them doing weU
is unscientific. If they do good actions if, and
only if, there is a sure reward, then perhaps we
could discount their actions as not fully ethical.
However, even in that case, we are faced with
the sum of good in the world being increased
which is preferable to the status quo. However,
I believe that most cases are more like my hopeful
saint: the payoff is uncertain for businesses. StiU,
what matters is that they have a belief in the
payoff and act accordingly. Thus, I contend that
although our judgments about the morality of
business may be tempered by perceived prudence,
it is not a mortal blow to them being ethical at
aU.
If one grants a prudential element in business,
then there are obvious applications to business
ethics, since there is a rational strategy based on
the utilities and iteration of the game.
Tit-for-Tat. In iterated games, (that is, when
repeated with a known payoff matrix) various
strategies emerge, and these have been tested
against each other with human subjects and in
computer tournaments. When players have the
possibility of rewarding each other through
cooperation and hurting each other through
defection, the best strategy has turned out to be
the so-caUed Tit-for-Tat. Robert Axelrod (1984)
called for programs and then let them run in
prolonged tournaments (over 120,000 moves).
The simplest program, Tit-for-Tat, was also the
most successful in terms of survival. It begins by
cooperating and then reciprocates the move of
the other party. In effect, it rewarded cooperation, but did not punish defection with anything
other than a penalty of parity. Axelrod summa-

rizes its success as being due to it being nice

(never being the first to defect), retaliatory,
forgiving, and clear. It is interesting to note that
the simple program, uninfluenced by perceived
non-verbal messages, desire for vengeance, or the
need to out-do the other party at whatever the
cost, routinely out-performs its human competitors.
One significant lesson of Tit-for-Tat is that in
an iterated setting, cooperation is the preferable
strategy and defection wiU be punished. If businesses want to survive and grow in a competitive environment, cutting ethical corners to get
instant gain will lead to long term problems and
sub-optimal payoffs. While that is often held to
be intuitively true, there is a body of empirical
research which confirms it. Currently, there are
a number of writers in business ethics who
contend that the admittedly artificial frameworks
of game theory in general and the prisoner's
dilemma in particular point out important
findings in normative ethics. As Manuel
Velasquez (1996) says
The research on prisoners' dilemmas and social
dilemmas shows that ethical behavior is more
profitable and more rational than unethical
behavior in terms of both the negative sanctions
on unethical behavior when interactions with
stakeholders are iterated, and the positive rewards
of habitually ethical behavior when stakeholders
can identify those who are predisposed to be
ethical."^
Corporate personhood. It is, of course, possible to
play a prisoner's dilemma with a computer, much
like a simple chess program. Moreover, if you
cannot see the other party, there is nothing to
distinguish a computer from a human player. In
this section I wiU suggest, foUowing French and
Danielson, that businesses may act as independent moral agents, and can react to the dilemma
in a rational way.
Individuals are the basic units of moral agency,
and an institution is composed of many individuals. Certainly the individuals may be working
together (that is, coUectively) and they may make
decisions which are moral or immoral. French's
claim is that individuals may not be the only

Games Students Play

moral actors, though. A corporation may have a

purpose, culture and intentionality that is distinct
from the people that make it up. Thus a business,
especially if it is large and established, will have
an almost organic identity which wiU survive the
coming and going of any particular individual.
Thus it makes sense to say there is "an IBM way
of doing things" or that there is a "FedEx spirit."
There are shared understandings, and individuals
become acculturated or leave. This is not to say
that individuals can abdicate personal responsibility, even acting in a professional or corporate
role. French believes that individuals can be
culpable if there is a proper causal chain.
However, there may be cases w^here no particular
individual can be isolated, and then we have to
admit that the responsibility evaporates, or that
there is another moral entity involved. So if there
is systematic racism displayed by Denny's, a
restaurant chain in the U.S.A., it may be that
there is no written policy or dictate. Instead,
v^hat we find is a culture of shared understandings which no one person has authored, but
everyone in the company knows and lives by. Iri
that case French would suggest the corporation
is acting just like a moral agent. While not completely endorsing French's project on corporate
personhood, I do want to accept as plausible his
notion that corporations, and not just people, can
be moral actors. Claims of the sort "Exxon was
morally responsible for polluting the environment", or "Ford was to blame in the design of
the Pinto." are perfectly meaningful if seen in this
way.
French recounts a conversation he had with a
representative of Mazda's leasing division who
called him about an alleged late payment. He
comes to realize that he is not only talking to
an individual, but she is doing nothing but
reading from a flow-chart script provided by the
company: he might weU have been talking to a
menu driven voice synthesizer. Hence the decisions she (apparently) makes are the product of
corporate policies and procedures that are truly
organizational; since individuals have very little
personal discretion. So, for the sake of argument,
we have entities, notably corporations, which can
have a tremendous impact on our lives, and
which may be thought of as making decisions of

61

a moral kind. Admittedly, of course, the policies

are generated by humans, and there is a level of
discretionary judgment at a high executive level.
Nevertheless, on this view corporations are
properly viewed as having a culture, disposition
or intentions; and these can have moral content.
For our purposes, corporate decision-making
tends to be rational. Peter Danielson has taken a
strong view along these lines. He says:
I find that . . . firms are suitable rational moral
agents but humans perhaps are not . . . They have
morally crucial capacities that individual people
may lack. For example, firms . . . may be constituted by public decision procedures, some of which
commit them to various courses of action contrary
to their interests, yet which are open to interestbased change."
That is, working from enlightened selfinterest, corporations have realized that the
business environment is effectively an iterated
prisoner's dilemma, and hence not only curb
their behavior, but do so in a transparent and
predictable way. French summarizes his version
of the argument by saying:
It is empirically demonstrable that most corporations do adopt constrained strategies in the very
marketplace that for about three centuries we have
been told is governed only by unconstrained
maximization. They do so some might say they
have to do so because the constrained approaches
simply fair better. Constrained strategies are more
likely to produce market success than unconstrained ones. That is what the empirical tournament evidence in game theory indicates . . . I am
certainly not saying that corporations are automatically ethical, or that by being involved in the
marketplace they cannot avoid becoming ethical.
That would be grossly out of line with the facts.
Instead, I am saying that corporations, by their very
constitutive structures, evidence the functional
capacities necessary to be ethical. The evidence
regarding humans is far more ambiguous.'*
If he is correct, then this is important news for
teaching business ethics. The airlines noted
earlier are acting like players in a prisoner's
dilemma game, but importantly they can all be
seen as acting like programmed computer players
or players with artificial inteUigence. There will

62

Kevin Gibson

be verifiable strategies for business in acting and

reacting to situations in the marketplace. French,
in dealing with Mazda, should recognize that
they will respond in certain ways to his initial
moves as if they were repeatedly playing rounds
in a game; and the appropriate response should
probably be strategic rather than intuitive. As he
notes, this is probably more predictable than
dealing with humans, and even offers the hope
that an organization could be ethical even if its
component human parts are not.
I believe that his example of the woman-asvoice-for-the-corporation is telling, and true.
Even though we could grant executive over-ride,
many of our (human) interactions with a business
are with people who are agents of the business.
Such agents are not free to make their own
(personal and individual) decisions, but rather
must respond according to the corporate script.
Again, let us admit that individuals in role still
are autonomous agents who are ultimately
responsible for their own actions, and at some
point they may choose to quit or blow the
whistle if actions seem egregious. However, most
workers necessarily have to pick and choose their
battles, and not everything rises to the level of a
quittable issue. Thus, I should expect that most
people working for organizations will behave
according to a set of policies which may have
moral consequences. A university teacher may be
required to report behaviors such as plagiarism
or harassment that do not exactly comport with
his or her own beliefs, for example. The governing "morality" of the institution may be an
organizational set of policies, or even the
unwritten and unarticulated culture of how
things are done at work. These understandings
may be independent of any particular person and
yet guide how individuals work in a corporate
setting. It is arguable, naturally, that individuals
ought to take moral responsibility for their
actions in an institutional setting. StiU, if many
people do, in fact, abdicate their personal choices
in the workplace, then the corporate personhood
point remains: We are confronted with powerful
entities (corporations and institutions) which
have the ability to help or harm us, and they
typically act in predictable self-interested ways
which can be modeled by games.

What I want to take from French is the possibility that there may be moral actors apart from
particular people, and if so it is incumbent on
us to realize how a corporate entity is likely to
behave. It seems that they may well be rational,
and act in risk averse ways when faced with
decisions. Although I may personally be a virtue
theorist who scorns prudential ethics, I am likely
to encounter both individuals who think
differently, and, significantly, a whole class of
institutional entities who are probably governed
by the rational dynamics of game theory.
Pedagogical implications. Game theory is an artifice

- a simple analogy for representing reality, and

it has its fiaws. Yet despite its shortcomings, it
offers teachers of business ethics valuable service.
Going through a prisoner's dilemma (or similar
matrix based game) has several potential benefits
for the teacher. Variation of pedagogical approach
has value in altering the classroom dynamic from
one of lecturer and lectured-to. It wiU appeal to
a wide range of audiences on a variety of levels.
It also has sufficient content and material reflection to challenge different types of learners.
For example. Honey and Mumford (2000)
suggest that there are likely to be several kinds
of student learners. "Activist" students learn best
when they have fresh tasks to confront and constantly seek new experiences. In contrast, the
"Reflector" needs time to evaluate material.
"Theorists" want to connect what they learn to
a wider context and a background of theory. In
contrast, a "Pragmatist" is keen to put theory
into practice. If a classroom has a mix, then it
would be appropriate for the teacher to use some
traditional and some innovative techniques.
These games offer a chance for different students
to bring their strengths to the fore: Some will
be more attracted to the task involved, whereas
others will want to understand the dilemmas in
terms of the wider business world. It is visceral,
in the sense that students get to have an immediate and sometimes passionate experience of
living through a dilemma that mirrors the
dynamics of everyday business life. The problems
found in the prisoner's dilemma and its variants
are realistic, even if the setting is contrived, and
therefore students can extrapolate from their

Games Students Play

findings. Depending on the teacher's objectives
in the particular course, there are opportunities
for both task completion, observation and reflection on a conceptual level.
One of the significant challenges to teachers
in business ethics, in my experience, has been
to make a bridge between theory and (what
students perceive as) the "real world." The
prisoner's dilemma allows them to feel the
tension between the intellectual norms they
aspire to and the temptation to put personal
welfare first. There is a strong folklore, at least,
about the dominance of profit and paramount
self-interest. Although these games are stylized,
they do offer an alternative view involving
cooperation and mutual benefit, a view which
emerges from the student's own actions rather
than being imposed or prescribed. The evidence
from computer tournaments and international
treaties (such as limits on fishing) gives some
empirical backdrop to the dynamics involved
which is attractive to many students. Students are
not being asked to "reinvent the wheel" since
there is a substantial amount of quantitative and
qualitative research on which they can draw.
Such games by themselves are unlikely to
produce much change in the students. However
when they are used in conjunction with other
material they can be a powerful tool to promote
the integration of an ethical dimension in the
decisions of future managers.'*

Notes
' See Coleman (1982), p. 113.
^ The story of the prisoners is attributable to Albert
Tucker who used it to explain a game described by
Merrill Flood to a group of psychologists. The
original game is from Merrill Flood "Some
Experimental Games" (1952).
* This discussion draws on Poundstone (1992).
'' An example could be the Thatcher/Scargill confrontation over the future of mining in England in the
middle 1980s.
^ 1 Kings 3: 16-28.
* See Jon Elster on Adaptive Preference Formation
which suggests that our preferences can be altered by
our perception of how possible they appear to being
realized. "Sour Grapes Utilitarianism and the

63

Genesis of Wants", in Utilitarianism and Beyond, ed.

B. Williams and A. Sen, p. 219.
' David Hume, Enquiry Concerning the Principles of
Morals, Section 1.
' This is a sketch of a prisoner's dilemma presented
in Murnighan Bargaining Games (1992), p. 70.
' This observation has empirical backing: Kelley and
Stahelski (1970) found that cooperative people believe
there are cooperative, neutral and competitive people
in the world, whereas people with a more neutral
disposition felt there were neutral and competitive
sorts, and competitive individuals felt that everyone
else was exclusively competitive too.
' These division problems are known as "ultimatum
games" and are covered comprehensively in
Murnighan (1991).
" See Khalil (1997).
'^ Martin Shubik (1971) published a paper which
describes a "dollar auction" which is instructive in
portraying how people get wrapped up in the psychological urge to win rather than rationally looking
at their substantive gains. A sum of money (adjusted
to be non-trivial) is auctioned off, with the usual rules
except the second-highest bidder also has to pay, but
gets nothing for it. As long as there are two or more
bids over half the sum, the auctioneer wins (e.g., 50
cents and 55 cents). The critical learning moment
comes when the bids near the sum (98 and 99 cents),
where the second bidder realizes that he or she is
forced to lose 98 cents or bid a dollar or more, at
which point the bids routinely go over the sum at
auction.
" Daniel Kahneman suggests proxy values can be
found out relatively easily by asking simple questions
of the order "If you broke your leg and won the
lottery in the same week, how much would you have
to win to think it wasn't such a bad week after all?"
Personal conversation with the author, 1997.
'* See, for example, the work of the psychologist
Lawrence Kohlberg (1981), who claimed that most
people were at either a "preconventional" or "conventional" ethical state.
'= Velasqez (1996) p. 202.
"^ Danielson (1992), p. 198.
" French ( 1991), p. 86.
'* I am grateful to the editor and two anonymous
reviewers whose comments have improved the article.

References
Axelrod, R.: 1984, The Evolution of Cooperation (Basic
Books, New York, NY).

64

Kevin Gibson

Beauchamp, T.: 1982, Philosophical Ethics {McGmwHiU, New York, NY).

Coleman, A.: 1982, Cooperation and Competition in
Humans and Animals (Van Nostrand Reinhold,
Wokingham, U.K.).
Danielson, P.: 1992, Artificial Morality: Virtuous Robots
for Virtual Games (Routledge, London).
Flood, M.: 1952, 'Some Experimental Games',
Research Memorandum RM-789,
RAND
Corporation, Washington, DC.
French, P.: 1991, Corporate Ethics (Harcourt, NY).
Gauthier, D. (ed.): 1970, Morality and Rational Selfinterest (Prentice-Hall, Englewood ClifFs, NJ).
Honey, P. and A. Mumford: 2000, The Learning Styles
Helper's Guide (Peter Honey Publications,
Maidenhead).
Hume, D.: 1999, Enquiry Concerning the Principles of
Morals, edited by T. Beauchamp (Oxford
University Press, Oxford).
Kelley, H. and A. Stahelski: 1970, 'Social Interaction
Basis of Cooperator's and Competitor's Beliefs
about Others', Journal of Personality and Social
Psychology 6, 66-91.
Khalil, E.: 1997, 'The Red Queen Paradox: A Proper
Name for a Popular GAme', Journal of International
and Theoretical Economics 153, 411415.
Kohlberg, R.: 1981, The Philosophy of Moral
Development (Harper & Row, San Francisco).

Murnighan, K.: 1991, The Dynamics of Bargaining

Games (Prentice-Hall, Saddle Brook, NJ).
Murnighan, K.: 1992, Bargaining Games (Morrow,
New York, NY).
Poundstone, W : 1992, Prisoner's Dilemma (Bantam
Doubleday, New York, NY).
Rawls, J.: 1971, A Theory of Justice (Harvard
University Press, Cambridge, MA),
Sen, A. and B. Williams.: 2002, Utilitarianism and
Beyond (Cambridge University Press, Cambridge).
Shubik, M.: 1971, 'The Dollar Auction Game: A
Paradox in Non-cooperative Behavior and
Escalation', Journal of Conflict Resolution 15,
545-547.
Solomon, R.: 1999, 'Game Theory as a Model for
Business and Business Ethics', Business Ethics
Quarterly 9(1), 11-29.
Velasquez, M.: 1996, 'Why Ethics Matters: A Defense
of Ethics in Business Organizations', Business Ethics
Quarterly 6(2), 201-222.
Marquette University,
Department of Philosophy,
P.O. Box 1881,
Milwaukee WI
33201-1881,
U.S.A.
E-mail: Kevin. Gibson@marquette.edu