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In Game theory, the Prisoner's Dilemma is a classical example for the analysis of how people behave when they are in a situation that does not have a zero sum. This implies that one person’s loss due to an action by the other is not exactly equal to the other person's gain; instead it is a lot higher.
In the Prisoner’s Dilemma the situation under study is that of two people who have been caught with stolen goods. The police do not have sufficient evidence to convict either of them for theft. The maximum they can do is to prove that they have stolen goods with them.
Now, the two people arrested, A and B are isolated and each is given the following options: a 1 year term if neither testifies against the other ;a 2 year term if both of them testify against each other and a 10 year term for the one who doesn’t, if only one of them testifies against the other.
It has been found here that neither A nor B cooperates with the other though mutual cooperation yields the shortest term for them. This follows from the fact that neither is aware of what the other is going to do. The best option in this case is for neither to cooperate with the other to assure a maximum term of just 2 years, instead of one cooperating and risking a 10 year term based on what the other does.
The Prisoner's dilemma is a way to explain the behavior of two entities and finds applications in the fields of business, law, biology, psychology among many others.
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