 Throughout this section to the course, we've been talking about cooperation and different aspects to the social dilemma. In this video, we'll look at various approaches that have been identified for fostering the cooperation required to overcome this core constraint. Our capacity to solve the social dilemma in various different ways is a defining factor in the strength of individual relationships, social organizations, economies, and society at large, and it is thus a topic that is of great interest to many. Depletion of natural resources, pollutants, and intercultural conflict can be characterized as examples of social dilemmas. Social dilemmas are challenging because acting in one's immediate self-interest is tempting to everyone involved, even though everyone benefits from acting in the long-term collective interest. Thus some form of cooperative institutional infrastructure is required to enable the cooperation inherent in achieving sustainable outcomes. The empirical fact that subjects in most societies contribute anything in the public goods game that we looked at previously is a challenge for classical game theory to explain via motives of total self-interest. But as we have noted, one of the defining features to human beings is their capacity for high levels of cooperative behavior. Cooperation is a massive resource for advancing individual and group capabilities, and over the course of thousands of years we have evolved complex networks for collaboration and cooperation, which we call institutions of various kind. These institutional structures help us to solve the many different forms of the tragedy of the commons that we encounter within large societies. As we've touched upon previously, the central issue of the tragedy of the commons is externalities. That is to say that the actions that the individual takes have costs that the person does not fully bear themselves, as they are externalized to the overall organization. If there are then too many negative externalities and not enough positive externalities, the organization will degrade over time. The central issue in solving the tragedy of the commons is then in reconnecting the costs of the individual's actions on the whole with the costs that they pay individually. When the individual always pays the full cost for their actions, then there is no social dilemma, and we should have a self-sustaining organization. This may sound simple in the abstract, but in practice it is not simple at all, and this is one reason why we have such a complex array of economic and social institutions. How we approach doing this, though, depends on the degree of interconnectivity and interdependence between the players in the game. When there is low interconnectivity, then there will likely be low interdependence, which means a high probability that negative correlations between actors. When actors are independent, then they can do things that affect others without that effect returning to themselves. For example, if I live in Germany and pollute the atmosphere so that there is acid rain in Sweden, as long as I never go to Sweden, then what happens there does not affect me too much and this negative correlation can go on existing. Now if we turn up the interconnectivity and interdependence, this will change the dynamic. Say I have business partners in Sweden and happen to take my family on holiday there also. Due to this interconnectivity and interdependence, there is a much greater possibility for a positive correlation between my experience and what happens in Sweden. This interconnectivity and interdependence means that I increasingly have to factor my negative externalities into my cost-benefit equation. The central importance of interdependence as a parameter in cooperation can be simply seen in the way that people cooperate more with those that they are closely connected to, more than with those that are of a different group, cultural society, and with whom they do not perceive a connection. Thus, how we go about solving the social dilemma depends on the degree of interconnectivity and interdependence within the system. At a low level, cooperative structures have to be imposed through regulation. While at a high level, this is no longer necessary as the interconnectivity and interdependence can be used to create self-sustaining, cooperative organizations. This is illustrated by how different cooperative structures have evolved within society, those within small, closely interdependent groups like the family, and those that have formed for larger society that is composed of many groups that see themselves as independent from each other. This is, to a large extent, part of what has happened as we've gone from small pre-modern societies to large modern societies. As the scale of the social systems that we're engaged in has increased, the interdependence between any two random members has correspondingly decreased because they are now part of a larger network and more likely to be further away from each other. This has worked to disintegrate additional cooperative institutions that are based on local interactions and interdependencies. In the absence of tools for interconnecting everyone within a large national society, we've had to create the formal, centralized regulatory institutions of the nation-state. And of course, with the rise of information technology and globalization, this is once again changing as we increasingly create social interdependencies that span the entire planet. The most manifest and obvious form for enabling cooperation is regulation and rules that are imposed on the social system by a third party to ensure behavior that is of benefit to the group as a whole. The aspect of cooperation examined in many experimental games is cooperation that occurs when people follow rules limiting the exercise of their self-interested motives. People might want to take from a shop without paying but are required to abide by the law. They may want to fish in a lake but limit what they catch to the quantity specified in the permit. They buy a fuel-efficient car because of regulation taxing the sale of inefficient cars. In all of these situations, people are refraining from engaging in behavior that would give them immediate benefit but is against the welfare of the group. Regulation involves limiting undesirable behavior. This method for enabling cooperation through regulation and rule adherence is deeply intuitive to us and often the default assumption as to how we might achieve cooperation. The central aim of regulation is to connect the individual's externalities with the costs and benefits they pay by imposing extra costs on them for certain negative externalities while providing them with subsidies and payments for certain activity that generates positive externalities. This form of solution to enduring cooperation through an external third party that imposes sanctions or awards can be very effective in situations of independence between members. It would be a good solution to the prisoner's dilemma where the members cannot communicate with each other and are likewise independent by forming a third party that could impose sanctions on them we could change the payoffs in the game to enable cooperative outcomes and the best solution for all. Although this regulatory approach is simple and straightforward, the development and maintenance of this external organization has overhead costs. It is also prone to corruption and has other limitations to it also. Studies have been conducted into the success of the establishment of a leader or authority to manage social dilemmas. Experimental studies on commons dilemmas show that overharvesting groups are more willing to appoint a leader to look after the common resources. There is a preference for a democratically elected prototypical leader with limited power especially when people's group ties are strong. When ties are weak, meaning greater independence, groups prefer a stronger leader with a coercive power base. The question remains though whether authorities can be trusted in governing social dilemmas and field research shows that legitimacy and fair procedures are extremely important in citizens' willingness to accept the authority. Furthermore, the formal governance structures of a police force, army and judiciary system will fail to operate unless people are willing to pay taxes to support them. This raises the question whether many people will want to contribute to those institutions. Experimental research suggests that particularly low trust individuals are willing to invest money in punishment systems. The political economist Elna Ostrom won a Nobel laureate for her studies of various communities around the world. Now they managed to develop diverse institutional arrangements for managing natural resources and thus avoid the collapse of their supporting ecosystems. She illustrated how communities can be managed successfully by people who use them rather than by governments or private companies. In an interview talking about this centralized regulatory approach she had this to say on the subject. For some simple situations that theory works and we should keep it for the right situation but there are so many other rich solutions. When interconnectivity between the members within a game increases so typically does interdependence and this changes the nature of the game that we're playing. Externalities are things that we can put external to our domain of value and interest but interconnectivity reduces the capacity to do this. One good example of this is the warning signs on the side of cigarette packets that makes you aware of the negative externalities of smoking on your body. They're trying to connect you with the negative externality that you're creating so that you recognize your interdependence and factor it into the equation under which you're making your decision to smoke. Thus we can see an externality is not necessarily something that is far away. It is simply whatever you exclude from your value system so that reducing it has no reduction to your payoff. But connectivity takes this barrier down requiring us to recognize the value of the other entity and factor it into our decision. This connectivity can be of many different kinds. Communications is a form of connectivity that can enable positive interdependence and there is a robust finding in the social dilemma literature that cooperation increases when people are given a chance to talk to each other. Cooperation generally declines when group size increases. In large groups people often feel less responsible for the common good as they are more removed from it and less connected with the other people with whom they share this resource. Thus we can see what is really at the core of the social dilemma is the question of what people value and how far that value system extends. Wherever we stop seeing something as part of us or our group that is where negative externalities accumulate and start to give us the social dilemma. However by building further connections so that people recognize their interdependence with what they previously saw as external they will start to factor it into the value system under which they're making their choices and this will reduce the negative externalities. From this perspective then the issue is really one of value and connectivity. Connectivity can change the equation by working to internalize the externalities. Connectivity though is just an enabling infrastructure one still has to build the channels of communication and structures that enable positive interdependence. Building systems of cooperation in such a context means enabling ongoing interaction with identifiable others with some knowledge of previous behavior. This of reputations that are durable, searchable and accessible. Feedback mechanisms, transparency etc. These are all means of fostering positive interdependence once the interconnectivity is already present and through them self regulating and sustainable systems of cooperation can be formed. If we think back to the public goods game we talked about in the previous video. If the amount contributed by the players to the pool is not hidden then players tend to contribute significantly more. This is simply creating a transparent system where there is a feedback mechanism. As another example we could think of eBay. eBay is really a huge social dilemma game. You would not send money before receiving the item nor would the other party send the item before receiving the money. So how has eBay succeeded? Their success is not because eBay is going to throw you in jail if you don't play nice. It is because of communications, transparency and feedback mechanisms that build positive interdependence. This interconnectivity that builds positive interdependence between actors is not just in space but also over time. Probably the single biggest difference in the prisoner's dilemma is whether it is a once off or reoccurring game that is being played. And it is to this topic of games the play out over time that will turn to in the next section of the course.