University:
Trinity College Dublin
Course:
EC401C | Economic Theory
Academic year:

2023
Views:

493

Pages:

2
Author:

Mallu E.

Prisoner’s Dilemma (Game Theory) A classic game theory example, the Prisoner’s Dilemma shows why two reasonable people might not cooperate even when it seems to be in their best interests to do so. It also emphasises the tension between individual and group rationality. Scenario: The scenario involves Two crooks are detained and interviewed individually. They can either help each other out by keeping quiet or they can turn on each other by confessing. Payoff matrix: If both inmates comply and keep quiet, they will receive low sentences, each lasting one year. If one keeps silent while the other betrays them (defects), the silent person receives a harsh sentence (10 years) while the betrayer is freed. If both turn against one another (a fault), they will receive a moderate sentence of five years each. Payoff Matrix Representation Prisoner B Silent (Cooperate) Betray(defect) Prisoner A:Silent(cooperate) (-1,-1) (-10,0) Prisoner A:Betray(defect) (-5,-5) (0,-10) Analysis:  Dominating Strategy: A dominating strategy is one that, independent of the other player’s actions, yields the maximum reward for the player. Defecting (betraying) is the ”referred strategy by the two prisoners within the Prisoner’s Dilemma since it reduces their possible sentence independent of the other prisoner’s choice.  Nash Equilibrium: When all players’ strategies are in balance with one another’s, a situation known as a Nash equilibrium is reached. The prisoner’s dilemma has a Nash Equilibrium when both inmates defect and are sentenced to five years each. This illustrates the difficulty, as this result is not ideal when contrasted to both of them staying silent, which would result in a one-year sentence each. Extensions and Applications:   An iterated version of the prisoner’s dilemma, which allows for numerous rounds of play, allows for the gradual evolution of strategies depending on previous play. It can be used to investigate cooperation and rivalry between persons or institutions in a variety of domains, including economics, politics, and biology. Critical Evaluation:  Simple assumptions: Assumes that participants are rational and purely self-interested.In the real world, judgements may entail reputation, communication, and trust, all of which can affect the result.  Cooperative methods: In repeated contacts, methods such as “Tit for Tat” (cooperation at first and subsequently copying the opponent’s prior move) can encourage cooperation. Concluding remarks: The Prisoner’s Dilemma offers an invaluable structure for comprehending strategic exchanges and the difficulties of attaining collaboration in competitive settings. It emphasises the significance of taking into account both individual and group motivations when making decisions.

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