Prisoners Dilemma
Prisoners Dilemma Meaning:
A situation imagined by game theorists. The prisoner’s dilemma involves two individuals who each have the choice of betraying the other or remaining silent. If both remain silent it will result in only a minor penalty for both. Betraying the other will result in either no penalty (if the betrayed individual stays silent) or a moderate penalty (if the betrayed individual also betrays). Remaining silent and being betrayed, on the other hand, results in a severe penalty. Hence, game theory predicts that the individuals will both betray each other, even though that means both will suffer a penalty.
A situation imagined by game theorists. The prisoner’s dilemma involves two individuals who each have the choice of betraying the other or remaining silent. If both remain silent it will result in only a minor penalty for both. Betraying the other will result in either no penalty (if the betrayed individual stays silent) or a moderate penalty (if the betrayed individual also betrays). Remaining silent and being betrayed, on the other hand, results in a severe penalty. Hence, game theory predicts that the individuals will both betray each other, even though that means both will suffer a penalty.
The prisoner’s dilemma can be applied to many situations in business and economics. For example, two companies with a similar product and equal market share must decide whether or not to advertise. If both advertise the outcome is the best for both: equal market share and money saved on not advertising. If one advertises but the other does not then the advertiser takes market share from the other but has had to pay for advertising. If both advertise then their market shares remain equal and the money they have spent on advertising is wasted. This situation has many of the same characteristics as the prisoner’s dilemma.