Selfish Altruism: What Game Theory Teaches Us About Morality in Business and Life
Why generosity is often the most strategic move in a repeated game — and what game theory says about the long-run economics of being good.
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." — Adam Smith
Adam Smith famously noted that it is not the benevolence of the butcher, brewer, or baker that ensures our dinner, but their self-interest. Economics teaches us that in a free market, individuals are driven primarily by their own interests rather than the pursuit of helping the broader society. The baker bakes a loaf of bread and sells it for a price tag. The baker then uses the proceedings to get a haircut from a barber. Money circulates the economy, and everybody gets the goods and services they desire. Caring about other human beings is not a part of the equation. Economic theory suggests that we will reach an optimal outcome when every rational agent follows his or her own self-interest. To put it into different terms, selfishness makes everybody better off. The society, on the other hand, teaches us that someone's win translates to someone else's loss. We are taught that sharing the pie means enjoying a smaller portion of it. But is it really the case? Can caring about others benefit oneself? This article examines how morality can maximize the gains for a selfish agent and that perusing one's self-interest will result in a suboptimal outcome.
Game Theory and Selfishness
Game theory uses mathematical models to study optimal strategic interactions among rational agents. A prime example of game theory is the Prisoner's Dilemma. Imagine you and your accomplice are caught by the police. They take you into separate rooms and offer you three possible scenarios:
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If you blame the accomplice and they stay silent, you go free (0 years in jail), and the accomplice gets a heavy punishment (20 years in prison).
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If you both blame each other: you both get a moderate punishment (5 years in jail).
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If you both stay silent, you both go free (0 year in jail).
Would you trust your accomplice and stay silent? Let's explore the rational choice.
The Rational Choice
The Nash Equilibrium is a set of decisions made by players (you and your accomplice), which would not change after everyone's decisions are revealed. Put simply, it is a decision you will not regret, no matter what the accomplice decides to do. The Nash Equilibrium to the Prisoner's Dilemma is to cheat (blame your accomplice). If you blame the accomplice, you either go free or serve 5 years in prison, but you avoid the worst-case scenario of serving 20 years in prison. No matter what your accomplice decides, you will not regret your decision under any circumstances. If you stayed silent (cooperated) and figured out that your accomplice blamed you, you would deeply regret it. Although you would not regret this choice, you could have surely skipped the prison if you could trust your accomplice. You made the best and the most selfish choice, according to game theory, but it resulted in a suboptimal outcome. If you both cooperated and stayed silent, nobody would serve any jail time. That would be a win-win situation.
How Losses from Selfishness Magnify in the Real World
Number of Players and Repeat Rounds
Prisoner Dilemma deviates from reality in two major ways: a) the number of players (N) is limited to two, and b) you get to play the game only one round (R). In real-world situations, it is likely that players interact with each other multiple times (R > 1). Through countless interactions, gains and losses multiply. If you cheat on each other and another pair of suspects cooperate, you would be worse off than the cooperating suspects. Imagine you and your accomplice encountered this situation 40 more times. If you cooperate, you both serve 0 years in prison. If you both were to cheat, you would serve 200 years in jail! This example illustrates that two rational agents are far better off if they establish mutual trust. The mutual trust is the least individualistic and will result in optimal outcomes. Similarly, two businesses are better of if they collaborate.
Free Information Flow
The number of games played by agents in the real world is numerous. What will happen in a set of games in which multiple parties attend and can freely communicate? We are social animals. Words get around. What is the destiny of the cheating player? All players in the game will avoid doing any kind of transaction with the cheating player. The cheating player will get no business anymore. If one player is not virtuous, it will not be long before society will avoid all material interactions with them. Less business interactions means less opportunity for growth and wealth generation. That person is eventually worse off compared to someone who acts virtuously and whom other players trust. In fact, the biggest deals on Wall Street happen over a handshake or on a phone call between two players who have established trustworthiness in the game.
More On the Virtues of Being Virtuous
People attract like-minded individuals. Being virtuous means fostering a network that values long-term relationships and mutual benefits. A virtuous individual tends to attract valuable relationships and opportunities as well as steering clear of deceitful interactions that could harm their reputation and waste their time. This environment of trust and ethical conduct frees one's mind to focus on creativity and growth rather than being preoccupied with dealing with deceit or dishonesty.
Selfish Altruism: How Being Altruistic Maximizes Your Self-Interest
Economics teaches us to act according to our self-love. The modern society has adopted a zero-sum view of the world. Humans tend to hold an unconscious belief that someone's win means someone else's loss and that someone who desires to maximize his or her self-gain must be selfish. Maximizing one's self-interest at a deeper level involves being altruistic, virtuous, trustworthy, and caring about others. In billions of multiverses and trillions of economic and social games, the ones who act virtuously will almost inevitably be better off than those who play by deceit. In fact, selfishness and altruism are two sides of the same coin. If a selfish person desires to maximize success in business and life, they must necessarily be moral, ethical, and altruistic.
