The prisoner’s dilemma is an exemplary two-parties game inspected in-game theory. It demonstrates why two or more parties may fail to collaborate even though they should to achieve the best common result. The involved parties follow the Nash plan, which hinders the achievement of the best possible outcome. The dilemma demonstrates how groups operating in their self-interest may not always result in the best overall outcome.
Two suspects are apprehended and locked up for questioning by the police. They are confined in different cells and prevented from communicating with each other. Each suspect has the option of confessing or remaining silent. In this game, payoffs are the length of their sentences based on their decisions (Kagel, 2018). The suspects will each serve four years in prison if they both confess to the crime. If the first suspect confesses and the second suspect stays silent, suspect one is released while suspect two serves four years of jail time and vice versa. Alternatively, the suspects will be imprisoned for two years if they both remain silent. As both suspects act in their personal best interests, they fail to arrive at a mutually advantageous decision.
|Confesses||Fails to confess|
|Fails to confess||4,0||2,2|
Nash equilibrium is a scenario in game theory where the game’s outcome gets achieved through parties not deviating from the initial plan (Froeb et al., 2017). As a result, each party believes to have arrived at the best choice compared to the other participant (Robèrt & Broman, 2017). In this case, confessing is the dominant strategy as both parties seek to avoid the four-year sentence. Therefore, the Nash equilibrium is for both suspects to confess as they believe their partners will do so.
Froeb, L. M., McCann, B. T., Ward, M. R., & Shor, M. (2017). Managerial economics: a problem-solving approach (5th ed.). Cengage Learning.
Kagel, J. H. (2018). Cooperation through communication: Teams and individuals in finitely repeated Prisoners’ dilemma games. Journal of Economic Behavior & Organization, 146, 55-64.
Robèrt, K. H., & Broman, G. (2017). Prisoners’ dilemma misleads business and policymaking. Journal of Cleaner Production, 140, 10-16.