Abstract
A fundamental problem in collective decision-making is the conflict between individ-
ual and collective rationality. Rational individuals maximize their own self-interest,
yet such individual decisions often cause sub-optimal results for the group. Seeking
a resolution of this problem, we study an iterated prisoner’s dilemma (IPD) in order
to analyze the relationship between individual and collective rationality in the social
dilemma. Led by past psychological and economic literature, we introduce a sort of
bounded rationality in which the players are not given the payoff structure, but must
learn it from experience. Although each player learns to maximize expected payoff in
the partial information IPD, our analysis shows the development of a mutually coopera-
tive relationship. This result can be interpreted as the relaxation of the social dilemma:
bounded individual rationality is also collective rationality.
