Question

What is the “prisoner’s dilemma? What does it suggest, and/or teach, about negotiating and strategy?

Answer 1

Prisoner’s dilemma is the decision-making paradox in a game theory which why two rational individuals acting in their self-interest don’t produce optimal outcomes. In this setup, both prisoners choose to protect themselves and both of them choose suboptimal choices.

The prisoner’s dilemma helps us to understand the business and competitions it provides a framework to understand strike balance between the corporations and competitions in business, politics, and in social settings, it’s a very useful tool for strategic decision making for the corporations. The prisoner’s dilemma application can be used in many fields like Business, economics, finance, psychology, etc.

It has various applications in business strategic decision making, the prisoner’s dilemma scenario normally occurs when the parties involved negotiations or meetings, decides whether to honor the deal or not. The prisoner’s dilemma occurs due to lack of communication between both parties, if both parties cooperate and communicate then it will result in a better outcome over the long run instead both parties always try to obtain short term advantages over other parties which results in the less optimal solution.

Prisoner’s dilemma occurs when two business competitors are fighting for the same marketplace. Often many sectors in business have two main competitors in the market, and the battle out to capture more market share or profit, it results in a drop in profits for both companies.

For example, Pepsi and Coca-Cola are selling similar products, to capture more market share and profit assume one firm decision to reduce the price of products to capture more market share, then the other firm has no choice but to reduce the price of the product to retain its market share and profits which ultimately result in profits drop for both firms.

The key takeaways from prisoner’s dilemma are:

• The strategy should be adaptable in changing environment.
• Trust and collaboration are beneficial over time.
• Establish a balance between corporation and competition in business for mutual benefits.
• A different strategy for different situation and outcomes.