3. What Is ‘Prisoner’s Dilemma’, of Non Cooperative Game?

Topics: Game theory, Nash equilibrium, Zero-sum Pages: 2 (756 words) Published: July 25, 2013
3. What is ‘Prisoner’s Dilemma’, of non cooperative game? Ans) In game theory, a non-cooperative game is one in which players make decisions independently. Thus, while players could cooperate, any cooperation must be self-enforcing. A game in which players can enforce contracts through third parties is a cooperative game. Prisoner’s dilemma of non-cooperative game is a scenario where cooperation and trust wins and blind pursuit of self-interest loses. It is illustrated by the problem faced by two accomplices locked in separate cells. Each is offered three choices by the police: (1) if both confess to the charges, both will be jailed for five years, (2) if only one confesses, he will be freed but the non-confessor will be jailed for ten years, or (3) if neither confesses, both will be tried for a minor offense and will be jailed for one year. If both know that the other will not be selfish and will take the collective interest into consideration, neither will confess and serve one year in jail. Otherwise, where one cannot depend on the other, both have no choice but to confess and serve five years. It is an example of non zero sum game. The concept of the prisoners’ dilemma was developed by RAND Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker, a mathematician. The prisoners’ dilemma has applications to economics and business. Consider two firms, say Coca-Cola and Pepsi, selling similar products. Each must decide on a pricing strategy. They best exploit their joint market power when both charge a high price; each makes a profit of ten million dollars per month. If one sets a competitive low price, it wins a lot of customers away from the rival. Suppose its profit rises to twelve million dollars, and that of the rival falls to seven million. If both set low prices, the profit of each is nine million dollars. Here, the low-price strategy is akin to the prisoner’s confession, and the high-price akin to keeping silent....
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