It is simply not true that defecting is a rational strategy. Defecting produces a suboptimal outcome–the players are worse off than if they had cooperated. That is why it is called a dilemma.

This is especially true when the game is an iterated prisoner’s dilemma whereby in subsequent iterations non-cooperators can be punished and the number of iterations is indefinate, which conforms to real world scenarios.

In recent attempts to model iterated games using computer simulations the winning strategy requires that players not defect before an opponent, and forgive some defections by opponents, although they must be willing to punish repeated non-cooperators.

See Axelrod for an account.

The prisoner’s dilemma is not a silly game; it helps explain the evolution of altruistic behavior.

“Tropical rain forests, bizarrely, are the products of the ‘prisoner’s dilemma.’ The trees that grow in them spend the great majority of their energy growing upwards toward the sky, rather than reproducing. If they could come to a pact with their competitors to outlaw all tree trunks and respect a maximum tree height of ten feet, every tree would be better off. But they cannot.

To reduce the complexity of life to a silly game is the kind of thing that gets economists a bad name. But the point is not to squeeze every real life problem into a box called ‘prisoner’s dilemma,’ but to create an idealized version of what happens when collective and individual interests are in conflict. You can then experiment with the ideal until you discover something surprising and then return to the real world to see if it sheds light on what really happens.

Exactly this has occurred with the prisoner’s dilemma game (although some theorists have to be dragged kicking and screaming back to the real world). In the 1960′s, mathematicians embarked on an almost manic search for an escape from the bleak lesson of the prisoner’s dilemma— that defection [cheating] is the only rational approach.” The Origins of Virtue, page 36.