Prisoners Dilemma

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The prisoner's dilemma is a concept that has come to occupy a prominent place in game theory. It helps us understand what governs the balance between cooperation and competition in economics and business, in politics, and in social settings. In the classic version of the game, two suspects have been arrested and are being interrogated separately. If one confesses and testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent and cooperate with each other, both are sentenced to only six months in jail. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to cooperate with each other by remaining silent. Since the only concern of each prisoner is to maximize his own payoff, confession is the dominant strategy for each. However, if the other player acts similarly, then they both betray and both get a lower payoff than they would get by staying silent. Rational self-interested decisions lead the two players to betray each other even though each player's individual reward would be greater if they both played cooperatively. Hence, a seeming dilemma and a conflict between the individual incentives of players and their joint payoff maximization. When each entity in the game pursues his private interest, he does not promote the collective interest of the group. Players can extricate themselves from the dilemma and sustain cooperation even when each has a powerful incentive to cheat. This path to cooperation arises from repetitions of the game. When the game is played repeatedly, each player remembers the previous actions of their opponent and changes his strategy accordingly. Each has an opportunity to punish the other player for previous non-cooperative play. If the number of rounds is known by both players in advance, economic theory says that the two players should defect again and...
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