Law and Economics: DECODING GAME THEORY in LAW


Team Law Community
June 13, 2020


Decision making powers of individuals is to maximize utility or profits subject to constraints. Game theory is a tool used by the players to understand the strategy of the competitor. In this blog, the focal point is understanding the strategic behavior. Strategic settings are circumstances wherein one person would involve the behavior of second person while making decision and the second person would like to do correspondingly.

Consider the example of evolution from the angle of game theory, humans thrive in cooperation because it is considered to be the primary strategy that helped us to survive and thrive after years of struggle and adversity to compete against different sources of nature. Another sad thing of this critique is that after establishing our sovereignty, we have empowered other species and in a way suppressed their existence and eventually we turned against the laws of nature. There are an array of factors that affect the descent but the stance of game theory can work in our advantage as it is believed that change in equilibrium start at the most quintessential micro level and this point is something we failed to understand because we are grasped by the happening of the events at macro level.

A look into litigation model too would prove to be beneficial for us to understand game theory and law there are two types of litigation model. Divergent Expectation Model (DE) it concentrates on the reasons why the parties do not settle out of courts due to anticipation of different chances of winning. The other one being Private Information Model (PI) because they have different information. Under the DE model, at least one party’s expectation is wrong. In the PI model, information of both the parties are correct, only that some has information which the other one don’t possess.


The most famous segment of game theory is the Prisoner’s Dilemma. So, consider the following “game”.

We have two prisoners, prisoner-1 and 2. There is a commission of a serious offence by both the individuals and district magistrate cannot place a conviction order on both of them without having a single confession from either of them. The game theory exemplifies the intrinsic tendencies of humans to exhibit lack of cooperation in decent similar games in such a situation game theorist usually coin the terms dominant strategy and nash equilibrium which forms substratum of Game theory. The district magistrate informs the prisoners if neither of them confesses both will subdue lesser offence. If one of them confesses, one will be set free and the other will get maximum penalty. If both confesses, then they will be prosecuted for a serious offence, but definitely not maximum punishment. As illustrated in lower right cell.

Now comes the solution of the game, each prisoner has no other goal except to minimize the time spent behind bars. In this case I ignore the reputational issues which might evolve due to the confession. Each must decide without knowing what the other will do now comes the strategic behaviour.  This is a game of dominant strategy which every prisoner possesses. Now they will decide- “If the other prisoner has decided to keep silent, I am better off confessing. That way I spend no time behind bars at all, rather than two years. If the other prisoner confesses, I am also better off confessing. As bad as serving a six-year sentence might be, serving a ten-year sentence is worse. No matter what the other person does, I am better off confessing. No prison is better than two years and six years is better than ten years.” The repugnancy between private benefit and collective good emancipates the power of Prisoner’s Dilemma.

Law Community, Opening New Horizons For You!