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5. A choice of punishment
Perhaps most important are simplicity and clarity, so that a player thinking of cheating can easily and accurately calculate its consequence. Next comes certainty. Player have confidence that defection will be punished and cooperation rewarded. Next we ask how severe a punishment should be. Most people’s instinctive feeling is that it should fit the crime. But that may not be big enough to deter cheating. The surest way to deter cheating is to make the punishment as big as possible. Since the punishment threat succeeds in sustaining cooperation. It should not matter how dire it is. The fear keeps everyone from defecting, hence the breakdown never actually occurs and its cost is irrelevant. The problem with this approach is that it ignores the risk of mistakes. The detection process may go wrong, indicating cheating by a member of the cartel when the real cause of low prices is an innocent one such as low demand. If punishments are as big as possible, then mistakes will be very costly. To reduce the cost of mistakes, the punishment shall be the smallest size that suffices to deter cheating. Minimal deterrence accomplishes its purpose without imposing any extra costs when the inevitable mistakes occurs.
6. TIT for TAT
TIT for TAT is a variation of the eye for an eye rule of bahaviour: do unto others as they had done onto you. More precisely, the strategy cooperates in the first period and from then on mimics the rival’s actions from previous period. The TIT for TAT embodies four principles that shall be evident in any effective strategy: clarity, niceness, provocability and forgivingness. No matter what strategy you choose, you can not have any effect on what your partner sees.
7. An alternative to TIT for TAT
The basic properties of clarity, niceness, provocability, and foregivingness seem likely to be true of any good rule of behavior for extricating oneself from a prisoner’s dilemma. But tit-for-tat is too quick to punish someone who has a history of cooperation. We need to find a strategy that is more discriminating: it shall be more forgiving when a defection appears to be an exception, and it should punish when defection appears to be the rule. You can consider the following guidelines as a step in that direction. 1. Begin cooperating; 2. Continue cooperation;3.keep count of how many times the other side appears to have defected while you have cooperated;4. If this percentage becomes unacceptable, revert to tit-for tat. To determine what is an unacceptable percentage of defections. You need to know both a shirt-. Medium,and long-term history of the other sides’ actions. The long run is not enough, just because someone has been cooperating for a long time doe
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