Iterated Prisoner’s Dilemma – Definition

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Iterated Prisoner’s Dilemma Definition

In game theory, a prisoner’s dilemma is a situation in a game when two players need to bargain and cooperate to achieve the biggest reward – but they might not do so. When the two players refuse to cooperate, even when it is in their best interest, a prisoner’s dilemma occurs.

The iterated prisoner’s dilemma occurs as a result of an extended prisoner’s dilemma. When the same players engage in the prisoner’s dilemma more than once. In some cases, this type of prisoner’s dilemma is called the “Peace-War game.”

A Little More on What is an Iterated Prisoner’s Dilemma

In an iterated prisoner’s dilemma, players in a game remember the past actions of their opponent and user their behavioral tendencies to align their gaming strategy. When the same players play prisoner’s dilemma repeatedly, an iterated  prisoner’s dilemma occurs. Given that the players are already familiar with the pattern of the opponent, they can develop a strategy that will give them the highest reward and not follow the conventional gaming strategy.

The most common strategy in this dilemma is Tit-for-tat. The iterated prisoner’s dilemma applies to diverse human theories, especially those relating to human integration, cooperation and trust. Through this dilemma, one can know how cooperation and trust is perceived amongst humans.

In recent times, the iterated prisoner’s dilemma is used for corporate strategy and investment strategy.

Example of the Iterated Prisoner’s Dilemma Game

The illustration below is helpful in understanding the iterated prisoner’s dilemma in practice;

John and Jude are two best friends and were arrested for a suspected crime. Both friends are put in separate rooms (isolated) and have no way to interact with each other before they are called for interrogation. During the questioning, each of them is given a choice to implicate the other partner and be free of the charges.

The outcome relies on the decision of the two parties. If Jude betrays John and vice versa, it means the one betrayed will get a long jail term while the other will be set free. If John and Jude decide to cooperate and maintain silence during the interrogation, there will be no evidence to convict the two and they are given a lesser punishment. If both of them, however, decided to betray each other, they are given heavy sentences.

References for “Iterated Prisoner’s Dilemma › Investing › Financial Analysis › Behavioral › Learning Memory

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