How a Prisoner’s Dilemma Explains the Power of Customer Service

December 10, 2012

For the launch of the Customers That Stick blog, we published a roundup post entitled What Is Customer Service? At the beginning of that post, I posited a question:

“Is customer service a mere business function, subject to the tight strictures of return on investment? Or is customer service an expression of human decency, something that transcends the mere confines of profit? Perhaps customer service is of some middle place.”

The theoretical underpinnings of customer service are not often explored. We all assume that good customer service produces positive results for organizations. But why? What is it about customer service that makes it work at its most fundamental level?

To answer that question, we need to look to the discipline of game theory and the famous example of Prisoner’s Dilemma.

Prisoner’s Dilemma: Want to Play a Game?

Prisoner’s Dilemma is perhaps the best known game from game theory, which is the study of strategic decision making. If the idea of game theory makes you think of the movie War Games, including Matthew Broderick and the WOPR, you’re on the right track.

This write up from Wikipedia does a good job explaining the basics of Prisoner’s Dilemma in an accessible way:

“Two men are arrested, but the police do not have enough information for a conviction. The police separate the two men, and offer both the same deal: if one testifies against his partner (defects/betrays), and the other remains silent (cooperates with/assists his partner), the betrayer goes free and the one that remains silent gets a one-year sentence. If both remain silent, both are sentenced to only one month in jail on a minor charge. If each ‘rats out’ the other, each receives a three-month sentence. Each prisoner must choose either to betray or remain silent; the decision of each is kept secret from his partner.”

The Wikipedia entry goes on to explain (emphases are mine):

“What should they do? If it is assumed that each player is only concerned with lessening his own time in jail, the game becomes a non-zero sum game where the two players may either assist or betray the other. The sole concern of the prisoners seems to be increasing his own reward. The interesting symmetry of this problem is that the optimal decision for each is to betray the other, even though they would be better off if they both cooperated.

How a Prisoner's Dilemma Explains the Power of Customer Service | Dog Behind Bars

In the classic version of the game, collaboration is dominated by betrayal (ie betrayal always produces a better outcome) and so the only possible outcome is for both prisoners to betray the other. Regardless of what the other prisoner chooses, one will always gain a greater payoff by betraying the other. Because betrayal is always more beneficial than cooperation, all purely rational prisoners would seemingly betray the other. However, in reality humans display a systematic bias towards cooperative behavior in this and similar games, much more so than predicted by a theory based only on rational self-interested action.

There is also an extended “iterative” version of the game, where the classic game is played over and over, and consequently, both prisoners continuously have an opportunity to penalize the other for previous decisions.

“Axelrod [a researcher] discovered that when these encounters were repeated over a long period of time with many players, each with different strategies, greedy strategies tended to to very poorly in the long run while more altruistic strategies did better…”

It is the last paragraph that is key. In an iterative game (meaning one in which the game is repeated) where the players have to live with each other after making their decisions, cooperation is the best strategy.

And that is the reality of life and business.

We would like to see our customers more than once. So, how we treat them in one transaction will have an impact on the next transaction and on whether there is a next transaction at all. In our eBook 7 Secret Customer Service Techniques Every Expert Knows, we discuss the difference between a relational approach and a transactional approach to customers. Prisoner’s Dilemma helps explain the why behind this concept of customer service.

Haven’t you done business with a store or a person that tried to extract every possible cent from the transaction? Their approach to the deal was to get all they could and not leave a penny on the table, taking advantage of every opportunity the moment presented them.

Of course, you left feeling “nickel and dimed,” feeling taken advantage of, and, of course, you never did business with them again.

As Prisoner’s Dilemma teaches us, cooperation has an important place when the game keeps going. In most cases, customer service and business are for the long haul. Negotiate hard. Make a profit. But leave something on the table that allows your customers to feel valued.

Prisoner’s Dilemma helps to explain how cooperation has evolved in society and, indirectly, why great customer service works. In a world in which customer trust is harder to establish than ever, cooperation is the ultimate competitive advantage.


Postscript: I should note that there is an ethical aspect to this discussion that I am not broaching. Prisoner’s Dilemma ignores considerations other than utilitarian self interest. Ethics can also inform this discussion, but that is a conversation for another time and, quite frankly, another blog.



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