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The prisoner's dilemma is a game that is often used in areas like political science. However, because you have placed this in the business section, I will discuss this game in connection with business.
In this game, there are two players. The players must decide, without talking to the other or knowing what the other will do, whether to compete against one another or to cooperate. The game is based on a scenario in which two prisoners are being interrogated separately for a crime. If they both confess and they try to blame the crime on the other prisoner (if they compete) they both get medium sentences. If one confesses and the other does not, the one who confesses is not punished while the other gets a long term. If they both refuse to confess, they both get only short sentences. This means that they have to decide what is best for them and they have to predict what their rival will do without actually knowing what the other will do and without being able to coordinate with that person.
This can be applied to business. If your firm is in competition with another, the two of you are involved in a prisoner's dilemma game. You must both decide how to price your product. You might both decide to you lower your price. This would be the same as confessing in the prisoners' dilemma. If your competitor also lowers prices, you both lose because you both make less money. If your competitor keeps his prices high, you win and he loses because you get more market share. This game can be helpful to managers because it can help them think about situations where you are competing with another firm.
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