All About the Prisoner’s Dilemma
The “Prisoner’s Dilemma” is a well-known game theory. It was founded by Melvin Dresher and Merrill Flood in 1950. The theory was formally named by Albert William Tucker, a Princeton Mathematician. By definition, the “Prisoner’s Dilemma” offers a framework for balancing competition and cooperation. It is very useful in making strategic decisions. Today, the theory has found a purpose in diverse domains like political science, finance, business, biology, economics, sociology and psychology.
In this short article, you will read about the “Prisoner’s Dilemma”.
The “Prisoner’s Dilemma” functions in the following fashion:
Imagine there are two suspects who are accused of a serious crime. The accused are kept in two different rooms. The suspects are unable to communicate with one another. The accused are told the following:
1)if you are prepared to testify against the other prisoner, your charges will be dropped. And, you will be allowed to go scot free.
2)If you don’t testify against the other prisoner, you will receive a maximum sentence of 3 years.
3)If both the prisoners testify, they will be sentenced for 2 years.
4)If both the prisoners don’t testify, they will be sentenced for 1 year and charged with misdemeanor.
In such a situation, what would the prisoners do? This is a simple overview of the prisoner’s dilemma.
The best way to handle this situation is with a payoff. And, the payoff here would be the duration of prison time. If one prisoner corporates and the other defects, it would be in favor of only one prisoner. If both the prisoners cooperate or defect, they will be at a better advantage.
This theory clearly proves that self-interest can result in worse outcomes. If both the prisoners cooperate, they will be able to reduce the duration of their prison time. In terms of business, rational entrepreneurs who are interesting in maximum benefits are likely to defect and not cooperate.
In this Business World!
The Prisoner’s Dilemma was seen between two famous competitors: PepsiCo and Coca-Cola. These are two famous soft drink companies that followed the game theory. If Coca-Cola decides to reduce its price, PepsiCo should follow. PepsiCo will have no choice! In the long run, such changes can drop profits for both the soft drink firms. This is when both the companies must focus on a win-win strategy. They should sign up agreements, evaluate budgets and let the market do the trick.
- Globalie Blog Team