This is a scenario posed that helps to understand how individuals should act in regards to self interest. The situation is that the police have two suspects for a crime in custody. They are housed in different rooms of the stationhouse, and the police do not have enough evidence to charge them with the major crime. They have enough for a minor crime, but the only way the police can exact the greatest amount of punishment is if one of the prisoners incriminates the other one. The dilemma is as follows: The first outcome is that neither prisoner confesses; if this happens they will both spend three years in prison. Hence, being independently silent carries with it the same penalty for both. The second outcome is that both of them confess, in which case they both receive four years. This means if both speak, if both take action not against one another but separately, the result is greater jail time than if they remained silent. The third outcome is that one confesses and the other does not, in which case the prisoner who confessed receives two years and the one who did not has to spend twelve years in prison. This heightens the self interest angle over the other one. The answer to this dilemma is dependent on your point of view and its stress. If one stresses solidarity and acting in concert with one another, the best outcome for both of them is for neither to confess, thereby receiving just three years in prison. If one, however, stresses the importance of their own self interest, they can reduce their sentence to two years by confessing. At the same time, if they believe that the other will act in self interest, they must also confess in order to avoid getting twelve years.

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Ashley Kannan | Certified Educator

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paramnd | Student

GAME THEORY IS A BRANCH OF MATHEMATICS OFTEN USED IN ECONOMICS TO
EXPLAIN STRATEGIC BEHAVIOR. PRISONER'S DILEMMA IS A MODEL IN GAME
THEORY THAT IS USED IN ECONOMICS TO EXPLAIN THE BEHAVIOR OF FIRMS IN
OLIGOPOLY.
PRISONER'S DILEMMA EXPLAINS WHY FIRMS (WITHOUT COOPERATING WITH
COMPETITORS AND WITHOUT PERFECT KNOWLEDGE OF HOW THEIR
COMPETITORS WILL REACT, BUT KNOWING THAT THEIR COMPETITORS WILL REACT
IN SOME FASHION) WILL OFTEN FIND THAT THE BEST STRATEGY IS THE OPPOSITE
STRATEGY FROM WHAT WOULD BE CHOSEN IF THEY COULD COOPERATE WITH
THE COMPETITION.