OPEC and the Prisoner’s Dilemma

The prisoner’s dilemma is a part of game theory. Two prisoners who committed a crime each have three options: Both cooperate and receive penalties; cooperate with the police while hoping the other does not do likewise and enjoy a reduced sentence; refuse to cooperate and hope the partner does likewise. The dilemma demonstrates how capitalizing on the personal interest, when participants do not know the decisions of others, can harm the group. Kurt Zenz House applies the dilemma to the global oil markets in the Bulletin of Atomic Scientists, “Variations on this clichéd example have been influential in economic theory as they suggest that completely free markets with all actors working to maximize their own utility might not – after all – produce the maximum total utility.” It’s in the interest of the Organization of the Petroleum Exporting Countries to limit production and keep prices high, but individual members find cheating on the limits profitable. “Given the degree to which many dictators have been relying on oil revenues to consolidate power, the temptation to cheat coupled with the realization that others are likely to cheat suggests that oil supply won't drop very much,” explains Zenz House. Low oil prices are only temporary, he predicts. Demand for oil is expected to climb, as the global population increases and China and India purchase more cars and modernize economies. It’s in the overall long-term interest of oil importers to conserve and seek alternative forms of energy. – YaleGlobal

OPEC and the Prisoner's Dilemma

Kurt Zenz House
Thursday, December 25, 2008

Click here to read the article from the Bulletin of the Atomic Scientists.

Kurt Zenz House studies and develops methods for large-scale capture and storage of human-made carbon dioxide. He recently patented electrochemical weathering, a novel process that expedites the ocean’s natural ability to absorb carbon dioxide, and cofounded a venture-capital-backed alternative-energy company. Additionally, he cofounded the Harvard Energy Journal Club to facilitate cross-disciplinary discussions about energy technology; in 2007, Esquire magazine featured him among its “Best and Brightest.” He holds a bachelor’s degree in physics from the Claremont Colleges and a PhD in geoscience from Harvard University.

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