I’ll share a fun scenario today, thanks to a student of mine who shared it with me – The Pirate Game:
There are 5 rational pirates, A, B, C, D and E. They find 100 gold coins. They must decide how to distribute them.
The pirates have a strict order of seniority: A is superior to B, who is superior to C, who is superior to D, who is superior to E.
The pirate world’s rules of distribution are thus: that the most senior pirate should propose a distribution of coins. The pirates, including the proposer, then vote on whether to accept this distribution. If the proposed allocation is approved by a majority or a tie vote, it happens. If not, the proposer is thrown overboard from the pirate ship and dies, and the next most senior pirate makes a new proposal to begin the system again.
Pirates base their decisions on three factors. First of all, each pirate wants to survive. Second, given survival, each pirate wants to maximize the number of gold coins he receives. Third, each pirate would prefer to throw another overboard, if all other results would otherwise be equal. The pirates do not trust each other, and will neither make nor honor any promises between pirates apart from the main proposal.
What is the solution? Can pirate A distribute the coins in such a way to guarantee the distribution will be accepted by the 4 others? I’ll post a solution later this week.
[For my students: this game is an extension of the Ultimatum Game we discussed in class. Here is a full treatment of the Pirate Game in Scientific American.]