What is a Prisoner's Dilemma?

When two individuals trying to resolve an issue act in their own self-interests rather than aiming for an optimal outcome, and as a result end up worsening the situation instead of resolving it, its called the Prisoners Dilemma paradox. Decision analysis of conflict resolution in the Prisoners Dilemma shows that each person was serving his/her own self-interest at the expense of the other person, leading to a poorer outcome for both parties. Cooperation and serving a common cause would have yielded better results.

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How does the Prisoner's Dilemma Work?

To put it simply, when working in teams of two or more people, working towards the common good is the better option than choosing self serving actions and putting the self above the team.

Examples of Prisoners Dilemma

Consider the example of two thieves A and B suspected of robbery. They now have the option of entering a plea bargain to minimize their sentences. If A pleads guilty, it reduces his sentence to a two year stint in the cooler, same goes for B. If A pleads not guilty, then he could face criminal charges and a full sentence of 5 years if convicted, same goes for B. However, if A pleads not guilty but B pleads guilty, A could avoid the sentence altogether, while B goes to the behind the bars for the full sentence term. The converse also holds true in case of B.In this scenario, if A and B were inclined to think as a team and aimed for the best outcome, they would both plead guilty, serve their minimum sentence together and get out after two years. But, when Prisoners Dilemma comes into play, both parties act in their own self-interest at the expense of the other. In this case, A is banking on B entering a guilty plea bargain so he can get away scot free, B is thinking along the same lines. Both enter a not guilty plea, end up getting convicted and serving the full sentence, thus bringing about the worst case scenario for not being able to think beyond self-serving interests. When the Prisoners Dilemma plays out more than once, its called iterated Prisoners Dilemma. It is also a major reason for cooperation between parties with opposing views - so as to improve their common lot.

Brexit as the Real World Example of Prisoner's Dilemma

Britains decision to quit the European Union in June 2016, has created the Prisoners Dilemma paradox for both parties. Negotiating its political and economic ties with the European Union as a non-member has resulted in impasses that have been impeding the leaving process. European Union is motivated to make an example of Britain to any other member nations thinking of quitting the Union. As such, it isnt ready to give an inch where single market norms are concerned. Britain is similarly looking to reap the benefits of the unions single market without having to incur the costs of staying with the union. Both parties are ignoring the benefits of being allies while they prioritise their own self-interests.

Related Topics

• Market Structure
• Perfect Competition
• Bidding War
• Complements & Substitutes
• Substitution Effect
• Imperfect Competition
• Market Power
• Price Takers
• Price Makers 
• Perfect Competition and Decision Making
• X-Efficiency
• Captive Market
• Contestable Market Theory
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• Marginal Revenue
• Using Marginal Revenue and Marginal Costs to Maximize Profit
• Marginal Revenue Curve
• Profit Margin and Average Total Cost
• Break Even Point - Cost Curve
• Shutdown Point - Cost Curve
• Short-Run Decisions Based Upon Costs in a Perfectly Competitive Market
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• Decisions to Enter or Exit a Market in the Long Run
• Long-Run Equilibrium in a Perfectly Competitive Market
• Constant, Increasing, and Decreasing Cost Industries
• Productive and Allocative Efficiency in Perfectly Competitive Markets
• Market Efficiency
• Market Inefficiency
• Pareto Efficiency
• Market Failure 
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• Monopoly
• Natural Monopoly
• Legal Monopoly
• Bilateral Monopoly
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• Predatory Pricing
• How Monopolists Set Price with the Demand Curve
• Total Cost and Total Revenue for a Monopolist
• Marginal Revenue and Marginal Cost for a Monopolist
• Inefficiency of Monopoly
• Perfectly Competitive Market
• Monopolistic Competition
• Duopoly
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• Differentiated Products
• Perceived Demand for a Monopolistic Competitor
• Monopolistic Competitors Choose Price and Quantity
• Monopolistic Competitors and Entry
• Monopolistic Competition and Efficiency
• Cartel (Economics)
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• Traveler's Dilemma
• Prisoner's Dilemma
• Iterated Prisoner's Dilemma
• Nash Equilibrium
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• Trembling Hand Perfect Equilibrium
• Gambler's Fallacy
• Arrows Impossibility Theorem
• Backward Induction
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