For any who aren't familiar with it, allow me to summarize a thought experiment known as the Prisoner's Dilemma.
Two criminals who had been working together to commit a serious crime are caught by the police. The police have insufficient evidence to convict either of the crime they committed, and so ask each one to testify against the other in exchange for immunity. Each is told that if he cooperates, he will be set free, while the prosecutors will impose the maximum sentence of ten years on his confederate. However, they are told that if both criminals betray each other, they will each be given a lighter sentence of five years. Finally, if neither betrays the other, they will be charged with a petty crime instead and each of them will receive a mere six-month sentence.
So supposing you are one of these criminals, the possible outcomes for you are:
- You stay quiet; your partner stays quiet--You get 6 months.
- You squeal; your partner stays quiet--You go free.
- You stay quiet; your partner squeals--You get 10 years.
- You squeal; your partner squeals--You get 5 years.
It is clear that the rational thing to do is to betray your partner--no matter what your partner does, betraying him reduces your sentence, either from 10 years to 5 years or from 6 months to nothing. Game theory is entirely on the side of betrayal.
The problem is, and this is where the dilemma comes in, that your partner is running through the exact same equation. For both of you, the rational thing to do is to betray the other--and this means that you will each inevitably serve 5 years when cooperation would earn you a mere six months. Mutual cooperation would be more beneficial than mutual betrayal--but how can you possibly trust your partner when the incentives are clearly for betrayal?
This may seem like a very specific set of circumstanced, but the truth is we face these kinds of decisions every day--decisions where cooperation could lead to mutual benefit, but our rational-self-interest leads us to harm. Think of a stock crash--when bad news befalls a company, everyone may sell their shares hoping to get out before the price declines. But of course everyone selling their stock causes the price to decline, perhaps much more than it would have naturally. The company may even be forced into default by the sudden drop in value, wiping out all the shareholders because they all vied for the same advantage. Or there's the famous "tragedy of the commons"--wherein a common field for grazing cattle is reduced to dirt because the rational self-interest of every farmer in a community is to use as much of the common resource as possible, resulting in over-grazing. Or think of music or film piracy--if everyone pirated movies, the films would make no money, and they'd stop being made. The only way to make sure they keep being made is to pay for them--but then you know that you're paying so that other people don't have to. And you know that you could save a ton of money by being one of those people not paying. But if everyone thought that way, the industry would die.
We all occasionally find ourselves in situations where we want to contribute to a problem because it would really suck to end up being the one guy who didn't benefit from being selfish.
The fact is, individual rational actors put together often add up to one hugely irrational group. The only way to avoid this trap is for the individuals involved to cooperate--but how can cooperation exist when every individual knows that they'll benefit by acting against the group? How can trust exist in a group when individuals in the group have every incentive to betray that trust?
The only solution, it seems to me, is for the group to establish firm rules with known consequences. If the group is empowered to enforce cooperation, the equation changes for the individual rational actors--the benefits of betraying the group trust disappear.
In short, for some problems, individuals cannot independently come to workable solutions. For some problems, you need a government. That is why the Libertarian ideal fails so thoroughly--Government must at times be empowered to do more than simply protect its citizens from one another. A rational individual will pollute the environment for cash, because if they do and no one else does they benefit with little consequence, while if everyone else does and they don't they will suffer without having even gotten the benefits while they could. A rational individual will use as much oil as they can, because when a resource is scarce rational self-interest leads you to get while the getting's good. A rational individual will seek to avoid paying their taxes, because as long as everyone else pays their taxes they won't suffer the consequences of an under-funded government--and if no one else pays their taxes, why should they be the sucker?
Failure to empower your government to enforce common agreements that fly in the face of individual rational behavior can lead to catastrophe for all involved. And no amount of the libertarian panacea--rational self-interest on the part of individual citizens--will fix that, because rational self-interest is, in fact, the problem.