Game Theory Application

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MACABANING, Sittie Shermeen P.

2011 09152

Optional Project | March 22

Game Theory: An Application in Real Life

Introduction: The purpose of this economic analysis is to address Prisoners’ Dilemma, a classic game theory example, as a frequently existing phenomenon due to the fact that many examples in human interaction have the same payoff matrix as it has. Through the article entitled “NKorea accuses US, SKorea of cyberattacks” published last March 16, 2013 by the Philippine Star, we will examine the applicability of prisoners’ dilemma which is of the interest to the people in the fields of economics, politics and sociology as well as to the people of biological sciences. Assumptions: United States and South Korea are both suspects in a cyberattack. Their representatives are arrested and brought to the North Korea police station. They are interrogated separately about the crime they committed, but not enough evidence exists to convict them outright. They both have the option of confessing to the crime or keeping silent, and they both know that the other representative has this option as well. To determine motives, we will assign a range of preferences to the different outcomes, with 0 representing the worst outcome (pay 50 billion dollars) and 4 the best (pay 1 thousand dollars).     50 billion dollars 100 million dollars 20 million dollars 1 thousand dollars : 0 (one does not confess; other confesses) : 1 (both confess) : 2 (one confesses; other does not confess) : 4 (both do not confess)

Situation: If both representatives admit wrong-doing, then each will have to pay 100 million dollars. If neither confess, enough evidence is available to make them pay for a lesser crime and both will pay 1 thousand dollars each. However, if only one confesses, in exchange for testifying, he will only be charged 20 million dollars while the other will be fined 50 billion dollars.

Analysis: The following matrix shows the payoffs for this dilemma associated...
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