Prisoner’s Dilemma

Topics: Prison, Competition, Confession Pages: 2 (430 words) Published: November 11, 2013
Prisoner’s Dilemma
Prisoner’s dilemma is simulation where cooperation and trust clash with selfishness. It is scenario by the problem about two prisoners. Police offer them three alternative selections: According to first choice, if they plead guilty, both will be imprisoned for five years. According to second alternative, if only one come clean, the confessor will be released however the other prisoner will be imprisoned for ten years. The last alternative is that if they do not confess, two prisoners will be judged for a petty crime and will be imprisoned for one year. If two prisoners recognize that the other prison will not be egotist, they will not confess and be punished with one year. However, if they do not trust each other, both sneak other and end up in prison for five years. Because remaining silent is taking risk. When prisoners are speaking, they hope that the other clamp up. Actually, when prisoners confess, they assume that being silent is more dangerous than speaking or confessing. Because of this, prisoners are prone to confession. Dixit and Nalebuff (2008) focus on economic and business applications of the prisoners’ dilemma. According to them, price war between Pepsi and Coke is example of prisoners’ dilemma. Low pricing is used by two companies because both companies are trying to maximize profits, minimize losses. Because of this price war, two sides continue to price their products competitively. They said that if two carbonated beverage firms across the intersection from each other agreed to cooperate, they could both earn a reasonable amount of profit by keeping the price high. If one company would cut prices and the other didn't, the one cutting prices would attract the customers and gain more than by cooperation But if both decide to undercut the other, eventually both would lose out. Such a case is a classic example of the prisoners' dilemma as applied to business. According to them, another example of prisoners’ dilemma is arm...
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