Dixit Prisoner S Dilemma
11/7/2014
Printable format for Prisoners’ Dilemma: The Concise Encyclopedia of Economics | Library of Economics and Liberty
Printable Format for http://www.econlib.org/library/Enc/PrisonersDilemma.html
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Prisoners’ Dilemma by Avinash Dixit and Barry Nalebuff
About the Author
T
he prisoners’ dilemma is the best-known game of strategy in social science. It helps us understand what governs the balance between cooperation and COMPETITION in business, in politics, and in social settings.
Related CEE Articles:
Behavioral Economics
Cartels
Competition
Game Theory
In the traditional version of the game, the police have arrested two suspects and are interrogating them in separate rooms. Each can either confess, thereby implicating the other, or keep silent. No matter what the other suspect does, each can improve his own position by confessing. If the other confesses, then one had better do the same to avoid the especially harsh sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the favorable treatment accorded a state’s witness by confessing. Thus, confession is the dominant strategy
(see GAME THEORY) for each. But when both confess, the outcome is worse for both than when both keep silent. 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 Princeton mathematician. Market for Corporate
Control
OPEC
Pharmaceuticals:
Economics and
Regulation
Related CEE
Biographies:
John F. Nash Jr.
Adam Smith
Go to 1st Edition
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
Printable format for Prisoners’ Dilemma: The Concise Encyclopedia of Economics | Library of Economics and Liberty
Printable Format for http://www.econlib.org/library/Enc/PrisonersDilemma.html
FAQ: Print Hints
Prisoners’ Dilemma by Avinash Dixit and Barry Nalebuff
About the Author
T
he prisoners’ dilemma is the best-known game of strategy in social science. It helps us understand what governs the balance between cooperation and COMPETITION in business, in politics, and in social settings.
Related CEE Articles:
Behavioral Economics
Cartels
Competition
Game Theory
In the traditional version of the game, the police have arrested two suspects and are interrogating them in separate rooms. Each can either confess, thereby implicating the other, or keep silent. No matter what the other suspect does, each can improve his own position by confessing. If the other confesses, then one had better do the same to avoid the especially harsh sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the favorable treatment accorded a state’s witness by confessing. Thus, confession is the dominant strategy
(see GAME THEORY) for each. But when both confess, the outcome is worse for both than when both keep silent. 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 Princeton mathematician. Market for Corporate
Control
OPEC
Pharmaceuticals:
Economics and
Regulation
Related CEE
Biographies:
John F. Nash Jr.
Adam Smith
Go to 1st Edition
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