The Prisoners' Dilemma

4.3 of The Economy 1.0 & The Economy #2

-Given these payoffs, how will they play the game?

-Anil’s best responses are Terminator, no matter what Bala picks. The same applies to Bala

-Thus, they both have a dominant strategy of picking Terminator.

-What is noticeable is that this outcome is worse then if they both picked IPC, and has the least joint payoff in this matrix

Why does this represent a prisoners’ dilemma?

-A game where the payoffs in the dominant strategy equilibrium are lower for each player, and also lower in total, than if neither player played the dominant strategy.

Where does the prisoners’ dilemma come from?

-Two prisoners, Thelma and Louise, have two strategies. To accuse or to deny a crime, they were both involved.

-From the payoff matrix, if they both deny, they both get one year each. If only one accuses, they get 0 years, whilst the other gets 10 years. If both are accused, they both get 5 years.

-Because of the payoff matrix, though, both dominant strategies would lead to an outcome where they both accuse, which is the worst outcome there.

What aspects can be said that led to Anil and Bala choosing an unfortunate outcome here?

-No value on the payoffs of the other person, thus not internalising their costs of what they did to the other person

-No way that any player could make the other pay for the harm that it caused

-No agreement beforehand stipulating what each would do. They may just agree to use IPC and ban Terminator.