NBA 2011 Lockout: Prisoner’s Dilemma
The prisoner’s dilemma isn’t just fascinating because of the interesting scenario it creates, it’s also incredible about how applicable it is. This dilemma can be applied to so many different situations: sports games, negotiating contracts, and so much more including everyday decisions. In this blog post I’m going to be going over how the prisoner’s dilemma came up in the National Basketball Association when negotiating where the NBA’s revenue should go. In every professional sport, there is always a situation where the league and the players of the league have to determine what percentage of total revenue goes to each of the two parties. There was an especially large conflict here in 2011-2012 for the NBA. The players wanted 53% of the revenue (the revenue being $4 billion) while the league wanted a 50/50 split. The inability to agree on the contract ended up causing a cancellation of the first couple weeks of the season. Every week the players refused to play, the revenue went down around $165 million.
To familiarize you (or to remind you) of the prisoner’s dilemma, here’s an example: if one convict (convict 1) confesses to a crime while another convict (convict 2) stays silent, Convict 1 will not go to jail and convict 2 will go to jail for 8 years (and vice versa). If they both confess, they will both go to jail for 5 years. If they both stay silent, they will both go to jail for 1 year.
Now going back to the NBA, it may make sense for both parties of the situation to meet in the middle so they can stop losing money from waiting (just like it may make sense for both convicts to stay silent so they get 2 years). However, each side thinks that waiting and not wanting to negotiate will convince the other side to just give up, which would result in the ‘waiting’ side to make more money for their party (like a confessing prisoner not going to jail if the other stays silent). However, the longer you wait, the more money you lose. The last option is to not agree on anything, and if this happens for 2 full months after the season is supposed to start, the season will be canceled and both parties will get almost nothing. 16 games into the season, an agreement was reached with 49% of the revenue going to the league and 51% of the revenue going to the players. Waiting this long resulted in the revenue going down around $350 million. Even though both sides lost more money from waiting than what they would’ve net gained from their desired difference in percentage, the league ended up “winning” (relatively) since they lost 1% and the league lost 2%.