Prisoner’s Dilemma In Game Theory
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What You'll Learn In This Blog
- Prisoner’s Dilemma Definition / What's Prisoner's Dilemma
- Why The Prisoner’s Dilemma Matters
- How The Prisoner’s Dilemma Works
- Prisoner’s Dilemma Examples In Real Life
Prisoner’s Dilemma Definition / What's Prisoner's Dilemma
The prisoner’s dilemma is one of the most well known problems in game theory.
It highlights the tension between individual and collective rationality, showing why two rational individuals might choose not to cooperate, even when it appears that cooperation would be in their best interest.
This concept is foundational in understanding strategic decision making and has applications across various fields, from economics to psychology.
Why The Prisoner’s Dilemma Matters
By studying this dilemma, we can better understand why cooperation is difficult to achieve and how strategies can be designed to encourage cooperative behaviour in various contexts.
This understanding is critical in fields ranging from economics to international relations, where the balance between individual incentives and collective well-being is often in conflict.
How The Prisoner’s Dilemma Works
To fully grasp the significance of the prisoner’s dilemma, it’s important to understand how it works.
In the classic version of the prisoner’s dilemma, two suspects are arrested and interrogated separately. Each prisoner has two options: to confess or to remain silent.
The possible outcomes are:
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If both prisoners remain silent:
They each receive a minor sentence.
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If one confesses while the other remains silent:
The confessor goes free, and the silent prisoner receives the maximum sentence.
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If both confess:
They both receive a moderate sentence.
This dificult choice arises because each prisoner’s best individual strategy (to confess) leads to a worse collective outcome (both receive moderate sentences) compared to if they both remained silent.
Prisoner’s Dilemma Examples In Real Life
The prisoner’s dilemma isn’t just a theoretical concept — it appears in various real life scenarios.
Let’s explore a few examples where this dilemma plays out.
Environmental Conservation
Countries around the world face a prisoner’s dilemma when it comes to environmental conservation.
While it would be beneficial for all countries to reduce pollution, each country has an incentive to continue polluting to maximise its economic benefits.
However, if every country chooses this self interested strategy, the result is global environmental degradation, which harms everyone.
Business Competition
Companies often face a prisoner’s dilemma in competitive markets.
For example, if two companies are competing on price, both may be tempted to lower prices to gain market share.
However, if both lower prices, they may end up in a price war, reducing profits for both. If they could agree not to undercut each other, both could maintain higher profits.
Public Goods And Free Riding
The provision of public goods, like clean air or national defence, also presents a prisoner’s dilemma.
Individuals might benefit from these goods without contributing to their provision, leading to a situation where everyone hopes to "free ride" on the contributions of others.
If too many people choose this strategy, the public good may be under provided or not provided at all.
Conclusion
The prisoner’s dilemma offers profound insights into the complexities of human decision making and the challenges of achieving cooperation.
Whether in business, environmental policy, or everyday life, understanding this concept helps us navigate situations where individual and collective interests are at odds.
