7.5 Value profile: trust  (Page 5/5)

The repeated iteration version of the Prisoner’s Dilemma attempts to model this debate between agency theory and stewardship theory. If one holds that cooperation only arise through “tit for tat” strategies, then one advocates agency theory. If, on the other hand, one holds that repeated iterations build trust and give rise to altruistic activity, then one is more sympathetic to stewardship theory which holds that managers can set aside rational self-interest and act as stewards who represent or embody the interests of the owners.

The Prisoner's dilemma is discussed throughout the literature in business ethics. For a novel and insightful discussion in the context of corporate responsibility see Peter A. French, 1995 Corporate Ethics from Harcourt Brace College Publishers

What you are going to do

Exercise one

• Play the Prisoner’s Dilemma game with one of your group members.
• Make sure you understand the options and the rewards and punishments associated with each. If you confess while your teammate does not confess, you get 0 points while your teammate loses 7. If you both confess, you each lose 5 points for a net loss of 10. If you both decide to not confess, then you each lose 0.5 points with a net loss of 1.
• Play only one round.
• Do not discuss what you are thinking with your teammate. Remember the enemy is keeping you separate to prevent collaboration.

Exercise two

• This is the same as exercise one except you will play multiple rounds. Your teacher will not tell you how many rounds you are playing until you reach the last round.
• What is the difference between playing only one round and playing n rounds?
• Where are you more likely to compete or anticipate competing? When you are playing only one round, when you play several rounds and know in advance how many, or when you are playing an indefinite number of rounds and now find yourself on the last round?
• What can you do as a player to motivate your teammate to cooperate rather than compete? How should you respond when your teammate decides to cooperate and not confess? How should you respond in future rounds after your teammate confesses?

Exercise three

• a. The following are claims as to the assumptions made by the prisoner’s dilemma. Evaluate each.
• Cooperation produces the best collective option and the second best individual option. This, in turn, assumes that cooperation produces more social welfare than competition.
• Free riding (competing) on the cooperation of others produces the most individual gain (for the free rider) but the second worst collective results. Society suffers loses from the harm done to the trusting, non-confessor and from the overall loss of trust caused by unpunished free-riding.
• Unlimited, pure competition (both prisoners confess) produces the worst collective results and the second worst individual results.
• Multiple iterations of the prisoner's dilemma eventually lead to cooperative behavior. But what causes this? (1) The trust that emerges as the prisoners, through repeated iterations, come to rely on one another? Or (2) the fear of "tit-for-tat" responses, i.e., punishing free riding by responding in kind on future iterations?
• b. Is the Prisoner's Dilemma neutral regarding human nature or does it assume Homo Economicus, namely, that each player is a socially atomistic, rational, self-interest maximizer?

Exercise four

• Agency theory assumes that cooperation is the best collective strategy but cannot be achieved by relying solely on human nature. This is because agency theory is based on Homo Economicus which holds that each human individual is a self-interest maximizer and is ontologically separate from other individuals and society. In other words, human individuals will seek to maximize self interest unless there are external constraints and incentives that force them toward what is best collectively. The best strategy for corporate governance under this approach is compliance. One identifies rules, monitors conduct, and punishes non-compliance.
• Opposed to agency theory is stewardship theory. While acknowledging that humans are strongly motivated by self interest, they are also equally capable of altruistic, other-oriented behavior. Hence what is required is an integrity approach to corporate governance that works to strengthen altruistic impulses through the development and fostering of trust.
• Write a short essay (or hold a discussion within your group) as to which approach is best. What is the underlying approach to human nature that each assumes. What are the strengths and drawbacks to each approach? Which approach is best supported by what you have learned from playing the Prisoner’s Dilemma?

Works cited

1. French, Peter A. (1995). Corporate Ethics . New York: Harcourt and Brace.
2. Grovier, Trudy. (1997). Social Trust and Human Communities . Montreal and Kingston, McGill-Queens University Press, 6.
3. Pettit, Philip. “The Cunning of Trust.” Philosophy and Public Affairs . 24, 1995, 202-25.
4. Pinker, Steven. (2011). The Better Angels of Our Nature: Why Violence Declined . Viking Books.
5. Solomon, R. and Flores, F. (2001). Building trust in business, politics, social relationships, and life . New York: Oxford University Press.
6. Strawson, P.F. (1974/2008). “Freedom and Resentment”. Freedom and Resentment and Other Essays . London: Routledge: 1-28.
7. Urban Walker, Margaret. (2006). Moral Repair: Reconstructing Moral Relations after Wrongdoing . Cambridge, U.K.: Cambridge University Press.