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Two co-conspiratorial criminals are arrested. When they are taken to the police station, they refuse to say anything and are put in separate interrogation rooms. Eventually, a police officer enters the room where Prisoner A is being held and says: “You know what? Your partner in the other room is confessing. So your partner is going to get a light prison sentence of just one year, and because you’re remaining silent, the judge is going to stick you with eight years in prison. Why don’t you get smart? If you confess, too, we’ll cut your jail time down to five years, and your partner will get five years, also.” Over in the next room, another police officer is giving exactly the same speech to Prisoner B. What the police officers do not say is that if both prisoners remain silent, the evidence against them is not especially strong, and the prisoners will end up with only two years in jail each.

The game theory situation facing the two prisoners is shown in [link] . To understand the dilemma, first consider the choices from Prisoner A’s point of view. If A believes that B will confess, then A ought to confess, too, so as to not get stuck with the eight years in prison. But if A believes that B will not confess, then A will be tempted to act selfishly and confess, so as to serve only one year. The key point is that A has an incentive to confess regardless of what choice B makes! B faces the same set of choices, and thus will have an incentive to confess regardless of what choice A makes. Confess is considered the dominant strategy or the strategy an individual (or firm) will pursue regardless of the other individual’s (or firm’s) decision. The result is that if prisoners pursue their own self-interest, both are likely to confess, and end up doing a total of 10 years of jail time between them.

The prisoner’s dilemma problem
Prisoner B
Remain Silent (cooperate with other prisoner) Confess (do not cooperate with other prisoner)
Prisoner A Remain Silent (cooperate with other prisoner) A gets 2 years, B gets 2 years A gets 8 years, B gets 1 year
Confess (do not cooperate with other prisoner) A gets 1 year, B gets 8 years A gets 5 years B gets 5 years

The game is called a dilemma because if the two prisoners had cooperated by both remaining silent, they would only have had to serve a total of four years of jail time between them. If the two prisoners can work out some way of cooperating so that neither one will confess, they will both be better off than if they each follow their own individual self-interest, which in this case leads straight into longer jail terms.

The oligopoly version of the prisoner’s dilemma

The members of an oligopoly can face a prisoner’s dilemma, also. If each of the oligopolists cooperates in holding down output, then high monopoly profits are possible. Each oligopolist, however, must worry that while it is holding down output, other firms are taking advantage of the high price by raising output and earning higher profits. [link] shows the prisoner’s dilemma for a two-firm oligopoly—known as a duopoly    . If Firms A and B both agree to hold down output, they are acting together as a monopoly and will each earn $1,000 in profits. However, both firms’ dominant strategy is to increase output, in which case each will earn $400 in profits.

Questions & Answers

What is Labour
Angela Reply
the service provide by the labourer is termed as labour.
Prtj
Meaning of Standard of living
Fazrat Reply
pls what is the meaning of opportunity cost
Fazrat Reply
the cost of next forgone alternative is called opportunity cost. for example you have two choices, either work or study and you choose to study then the opportunity cost for study is the earnings which you can earn while opting job.
Prtj
so what if I choose work it is the same as study
Fazrat
if you choose to work, then the cost of study is the opportunity cost for work
Prtj
ohk tnx
Fazrat
welcome. much love .
Prtj
how can inflation be defined
Mboko Reply
rise in general price level is called inflation.
Fardin
when the price of goods and services rise, the cost of living also increases. basically the increase in general price level is call inflation
Khushtar
when demand increase and supply decrease .leads to fall of quality and volume index's leads to inflation .
Khaja
inflation is a monitry policy that leads to continues increase in price of commodity in a geographical location with some period of time
Osola
what is economic
Enock Reply
economics is a science under which we study all those human activities which is related to scarcity with unlimited wants. By proff. Robbins .
Vibhu
it is a social science
ashiru
what is the difference between macro economic and micro economic
Bubu
Economic is a social science which studies human behaviour in relation to ends and scares means which have alternative uses
Nana
Economic is a social science that studies individuals, busnisses,governments, and deal deal with the entire society as a scarcity.
Mo
what is the differences between ends and wants?
Richard
Economics is a social science which studies human behavior in relationship to ends and scares means which have alternative uses
Musu
what is the indicator of economics development
Bibu Reply
how can you answer economic development
Mankaa Reply
how
Fatema
Two things, first economic growth, just takes into account the increase in per capita income... Which is absolutely vague, important, but vague.On the other hand, Economic development, is a much more wider term. Visit my blog to know more about the differences, ***thetheoryofeconomics.blogspot.in
Taha
Problems faced by the trade union
Appiah Reply
Excuse me am new here
ashiru Reply
Hi
Sereena
This app is used for studying and discussions. Hope it wil be useful for you.
Sereena
If u have any questions, please feel free to ask.🙂
Sereena
Hi
Fardin
sereena i have a question.
Fardin
I also have a question
ashiru
can u tel me what are the must major part of economics which helps and is must to know before doing any business?
Fatema
You can say me about question.
Soe
plz suggest me some books of economics & history for pg entrence exam.Only books for crack pg exam!
Wani
i think the most important part is marketing
Fardin
is ny 1 replyin to my question
Fatema
fatema i told your answer
Fardin
thanks Mr fardin.. Dats really nice of u
Fatema
you are welcome. the most important part in marketing for investment and making business is consumer behavior.
Fardin
right
Fatema
explain excess supply
Shalom Reply
surplus .
Kho
an excess supply or economic surplus is a situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand
Rahat
what is elasticity of demand
ashiru
what is equilibrium?
Richard
equilibrium is when quantity demand is equal to quantity supply
Osola
equilibrium is when quantity demanded of a commodity is equal to the quantity supplied of that commodity
Nana
equilibrium is wen quantity demand is equal to quantity supply
Sammy
how to differentiate long run and short run in monopoly?
shar Reply
Short run is a time period in which at least one factor of production is fixed; long run is when all factors of production are variable
Kevin
what is exceptional supply
Wencelyne Reply
what is the relationship between quantity demanded and price in the function Qd =f(p)
Ahmed Reply
it means qty demand varies inversely with price
mac
well, him in some places I saw it also as price function depending on offer, auctions style
Sorin
it qty demand varies inversely with price
Emmanuel
what is damand curve
Appiah Reply
it is the relationship between the quantity of goods and the price at which that quantity satisfies the demand
Sorin
refers to the graphs that show the relationship between quantity demanded of commodities and that of the price of goods and services at thesame particular time.
Alasana
is like a slope that shows the relationship between quantity that is demanded and also the price of G&S at the very same time
Palesa
Can anyone provide any production function showing returns to scale with MPL
Heron
what is perfect competition market
Bright Reply
what is monopolistic
Bright

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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