Deficiencies of the Prisoner’s Dilemma in Explaining the Emergence of Institutions: Introducing an Alternative

Over the past half-century, the impact of the prisoner’s dilemma has transcended its initial boundaries, influencing a broad spectrum of institutional studies and analyses of interdependent systems, such as collective action, public goods, governance of the commons, social norms, and social capital. Given this extensive influence, the latent fundamental flaws in this model can lead to misleading result for researchers and policymakers. As a descriptive–analytical research, the present study employed evolutionary game theory to examine the shortcomings of the iterative and evolutionary prisoner’s dilemma. It went on to introduce an alternative framework to explain the emergence and transformation of institutions. The critical discussion highlighted fundamental deficiencies of the prisoner’s dilemma manifested in four distinct levels of institutional analysis: the definition of institutions, identification of their function, explanation of their emergence, and description of their transformations. Consequently, the model is not capable of explaining institutional issues mentioned above. Addressing the role of uncertainty and considering the impact of small-world networks on payoff distribution, the second part of the study used a semi-parametric stag hunt matrix to model the cooperation problem. The results indicated that the non-spontaneous overlap between strong and weak ties can accumulate synergistic flows between content and structure, creating an environment conducive to institutionalizing capacity for achieving public goods on a large scale. Therefore, the process of overcoming social traps begins not with the punitive rules proposed by the prisoner’s dilemma, but with synergetic institutions that enhance the opportunity to discover common interests.IntroductionThe relation between institutions and development has been well recognized for quite some time. Numerous studies have delved into collective action, public goods, the governance of the commons, informal institutions, social capital, and the like. These areas serve as a common ground between two realms of economics: the theory of institutions and game theory. However, the majority of game theory studies are based on the assumption that the payoff distribution follows the prisoner’s dilemma. In the payoff matrix of the prisoner’s dilemma, the additional benefit of unilateral non-cooperative action results in a dominant strategy, preventing rational players from attaining the mutual benefits of co