Prisoners Dilemma

Published Jan 19, 2023

Definition of Prisoner’s Dilemma

The Prisoner’s Dilemma is a classic game theory problem that illustrates the conflict between individual and collective interests. It is a two-player game in which each player has two options: cooperate or defect. If both players cooperate, they both receive a moderate reward. However, if one player defects while the other cooperates, the defector receives a large reward while the cooperator receives nothing. If both players defect, they both receive a small reward.

Example

To illustrate the Prisoner’s Dilemma, let’s look at the following example. Two criminals, Joe and Bob, are arrested for a crime they committed together. The police have enough evidence to convict them but not enough to prove that they committed all the crimes they are accused of. So, the police offer each of them a deal: if one of them confesses and testifies against the other, they will be released, and the other will be sentenced to 10 years in prison. If both of them confess, they will both be sentenced to 5 years in prison. If neither of them confesses, they both get two years in prison.

Now, if both Joe and Bob cooperate and neither of them confesses, they will both receive a moderate reward (i.e., only a short time in prison). However, if one of them defects and confesses, they will receive a large reward (i.e., freedom) while the other will receive nothing (i.e., 10 years in prison). Thus, the dilemma is that if both players act in their own self-interest, they will both end up worse off than if they had cooperated (i.e., both 5 years in prison).

Why Prisoner’s Dilemma Matters

The Prisoner’s Dilemma is a classic example of the conflict between individual and collective interests. It illustrates how individual interests can lead to a suboptimal outcome for the group as a whole. That means it is a useful tool for understanding how people interact in situations where there is a conflict of interest. It can also be used to analyze the behavior of firms in competitive markets, as well as the behavior of nations in international relations.