What Is Diner's Dilemma?

Diner's dilemma is a game-theory situation with several players in which they each inadvertently end up sabotaging themselves and each other. It is also sometimes referred to as an unscrupulous diner's dilemma.

Similar to a prisoner's dilemma, a diner's dilemma occurs when several participants attempt to obtain the highest possible personal reward but instead find themselves in an unfavorable situation. The diner’s dilemma is also related to the tragedy of the commons and the free rider problem.

Key Takeaways

  • The diner’s dilemma is a game theory scenario that occurs when players agree to split the cost of a common meal but individually choose the value and cost of their own order.
  • Game theory and experimental evidence both suggest that people will tend to choose a more expensive meal for themselves, knowing that part of the cost will be borne by other players, but that this ends up leaving all the players worse off by paying more than they would have wanted to. 
  • The diner’s dilemma is related to the prisoner’s dilemma, the tragedy of the commons, and the free rider problem, and can be resolved by similar formal and informal institutional strategies.

Understanding Diner's Dilemma

Diner's dilemma is based on a situation where several people agree to split the bill before going out to eat. By following a logical course of action, every member of the group finds themselves ordering dishes more expensive than what they would normally buy, and they all end up facing the outcome they tried to avoid: a more expensive meal.

This is based on an economic theory that also incorporates some psychology and human nature, where individuals who are part of a group that agrees to split the bill will each tend to order more expensive items than they might otherwise choose.

Often, this action is performed without the person even consciously realizing this is what they are doing. Controlled experiments conducted by economists have shown that under the rules of this game, subjects do tend to choose the more expensive option. 

This scenario of splitting the check for a meal is one of the most common forms of a basic set of circumstances that happens in many different interactions. This same phenomenon can be carried out in other types of special situations or scenarios involving a group of people or the greater community, particularly situations that involve the sharing or distribution of natural resources or assets.

Diner's Dilemma vs. Tragedy of the Commons vs. Free Rider Problem

The diner’s dilemma is related to both the tragedy of the commons and the free rider problem. In the diner’s dilemma, each player seeks to maximize the value of the meal they receive, knowing that most of the additional cost associated with increasing their reward will be paid by the other players.

This happens in a tragedy of the commons when people seek to maximize their consumption of a free natural resource at the expense of every other individual when there is no way to exclude anyone from consuming, or in a free rider problem when people consume more of a good than they pay for because they are not compelled to pay individually. 

The diner's dilemma model is non-cooperative, a non-zero-sum, and a symmetric game.

This also suggests that solutions similar to those used to overcome tragedies of the commons and free rider problems can be useful in resolving a diner’s dilemma with a more favorable outcome for all the players.

For example, a formal institution could be adopted where the players explicitly agree beforehand to only choose a cheaper meal, with a penalty imposed on any cheaters. Or groups of people who repeatedly engage in diner’s dilemma type interactions over time could evolve informal institutional solutions, such as increased levels of trust between group members, which encourages more cooperative choices.

Example of Diner’s Dilemma

The diner’s dilemma is a common situation that many people have probably experienced or witnessed, even if they never realized there was a name for this chain of events.

For example, prior to going out for dinner, Steve, Dave, and Arthur decide that they will split the bill equally. Since the restaurant offers a wide mix of expensive and reasonably priced items, the three friends are faced with a tough decision.

Arthur, who would not normally purchase the expensive items, figures that since his costs will be distributed between the other members, today he can afford to do so. Dave and Steve use the same logical reasoning. As a result, the three friends end up spending more money than they would have liked.

What Is Game Theory?

Game theory is the analysis of hypothetical social situations amongst competing players to determine optimal decision-making of the individual and competing actors in the setting. It can be thought of as the science of strategy.

What Is Prisoner's Dilemma?

Prisoner's dilemma is a setting in which two individuals are separated from one another without the ability to communicate and must choose between making a decision that cooperates with the other or not. When both parties choose to cooperate, both will achieve the highest reward.

What Are Some Real Life Applications of Game Theory?

Game theory can be applied in investing (buying or selling of stocks), auction bidding, negotiations between multiple parties, pricing products, and launching a product or exiting a market.