Question

Please come up with a diagram (i.e. using a two-player decision matrix such as the Prisoner's Dilemma example in the Learning Notes) for an original game theory/prisoner's dilemma scenario (either in business, politics, or your own personal life), and explain what would be the most likely outcome of the scenario you have chosen.

more than 200 words please

Answer 1

Dear Student,

Please find below answer to your question :

"Prisoner's Dilemma" can be explained in following ways :

The prisoner's dilemma is a paradox in decision analysis in which two individuals acting in their own self-interests do not produce the optimal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process. The prisoner's dilemma is one of the most well-known concepts in modern game theory.

Some Important Key Points

· A prisoner's dilemma is a situation where individual decision makers always have an incentive to choose in a way that creates a less than optimal outcome for the individuals as a group.

· Prisoner's dilemmas occur in many aspects of the economy.

· People have developed many methods of overcoming prisoner's dilemmas to choose better collective results despite apparently unfavorable individual incentives

The dilemma emerges because while the overall best outcome is both prisoners keeping their mouths shut and thus both only serving one year sentences, if both prisoners act rationally to minimize their own terms, they will both defect. If you defect, you’re better off regardless of what the other player does than you are if you stay silent.

Ultimately, the results showed that the best strategy was 'tit for tat' – which means that a player starts out cooperating on the first move, and then does whatever it’s opponent does. So, if the opponent defects, the player would, too; and then if the opponent started cooperating again, the player would as well.

prisoner's Dilemma in Economics

The prisoner's dilemma is a standard example of a game analyzed in game theory that shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interests to do so. In the same way two competitive firms do not co-operate with each other due to fear of loss of Knowledge, Loss of Brand Image and market reputation that is gained over the period of time

Prisoner's Dilemma Scenario in Business

One such example is the tragedy of the commons. It may be in everyone’s collective advantage to conserve and reinvest in the propagation of a common pool natural resource in order to be able to continue consuming it, but each individual always has an incentive to instead consume as much as possible as quickly as possible, which then depletes the resource. Finding some way to co-operate would clearly make everyone better off here.

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