Posted in Finance, Accounting and Economics Terms, Total Reads: 895
Definition: Prisoner's Dilemma
There are two prisoners A & B who have committed crime jointly but now want to minimize the number of years of imprisonment. Each prisoner is interviewed independently with no contact between them in anyway. Each one will decide whether to confess or deny the crime considering possible decisions of the other prisoner. Regardless of the decision of the other prisoner, they then choose dominant strategy that will give the best result.
If both prisoners cooperate and deny, they would get a better outcome (2 years imprisonment only). But they cannot cooperate as they might end up with highest imprisonment if one denies his crime. Thus, the dominant strategy is the best result which can be achieved when deciding individually.
That is the dilemma of the prisoners: By cooperating with each other they could get a better result than by deciding individually.