what is the prisoner s dilemma 
the prisoner s dilemma is a paradox in decision analysis in which two individuals acting in their own self interests do not produce the optimal outcome a prime example of game theory the prisoner s dilemma was developed in 1950 by rand corporation mathematicians merrill flood and melvin dresher during the cold war but later given its name by the game theorist alvin tucker 1 some have speculated that the prisoner s dilemma was crafted to simulate strategic thinking between the u s a and u s s r during the cold war today the prisoner s dilemma is a paradigmatic example of how strategic thinking between individuals can lead to suboptimal outcomes for both players investopedia laura porterunderstanding the prisoner s dilemmathe typical prisoner s dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant as a result both participants find themselves in a worse state than if they had cooperated with each other in the decision making process the prisoner s dilemma is one of the most well known concepts in modern game theory the prisoner s dilemma presents a situation where two parties separated and unable to communicate must each choose between cooperating with the other or not the highest reward for each party occurs when both parties choose to co operate the classic prisoner s dilemma goes like this 1the respective penalties can be expressed visually as follows in this case each robber always has an incentive to defect regardless of the choice the other makes from elizabeth s point of view if henry remains silent then elizabeth can either co operate with henry and do a year in jail or defect and go free obviously she would be better off betraying henry in this case on the other hand if henry defects and testifies against elizabeth then her choice becomes either to remain silent and do five years or to talk and do three years in jail again obviously she would prefer to do the three years over five in both cases whether henry cooperates with elizabeth or defects to the prosecution elizabeth will be better off if she defects and testifies now since henry faces the exact same set of choices he also will always be better off defecting as well the paradox of the prisoner s dilemma is this both robbers can minimize the total jail time that the two of them will do only if they both cooperate and stay silent two years total but the incentives that they each face separately will always drive them each to defect and end up doing the maximum total jail time between the two of them of six years total the prisoner s dilemma is frequently used in economics or business situations to explain why individual incentives might lead actors to choose a sub optimal outcome examples of the prisoner s dilemmathe economy is replete with examples of prisoner s dilemmas which can have outcomes that are either beneficial or harmful to the economy and society as a whole the common thread is this a situation where the incentives faced by each individual decision maker would induce them each to behave in a way that makes them all collectively worse off while individually avoiding choices that would make them all collectively better off if all could somehow cooperatively choose one such example is the tragedy of the commons it may be to everyone s collective advantage to conserve and reinvest in the propagation of a common pool of natural resources in order to be able to continue consuming it but each individual always has an incentive to instead consume as much as possible as quickly as possible which then depletes the resource finding some way to co operate would clearly make everyone better off here on the other hand the behavior of cartels can also be considered a prisoner s dilemma all members of a cartel can collectively enrich themselves by restricting output to keep the price that each receives high enough to capture economic rents from consumers but each cartel member individually has an incentive to cheat on the cartel and increase output to also capture rents away from the other cartel members in terms of the welfare of the overall society that the cartel operates in this is an example of how individual incentives can sometimes actually make society better off as a whole escape from the prisoner s dilemmaover time people have worked out a variety of solutions to prisoner s dilemmas in order to overcome individual incentives in favor of the common good first in the real world most economic and other human interactions are repeated more than once a true prisoner s dilemma is typically played only once or else it is classified as an iterated prisoner s dilemma in an iterated prisoner s dilemma the players can choose strategies that reward cooperation or punish defection over time by repeatedly interacting with the same individuals we can even deliberately move from a one time prisoner s dilemma to a repeated prisoner s dilemma second people have developed formal institutional strategies to alter the incentives that individual decision makers face collective action to enforce cooperative behavior through reputation rules laws democratic or other collective decision making procedures and explicit social punishment for defections transforms many prisoner s dilemmas toward the more collectively beneficial cooperative outcomes last some people and groups of people have developed psychological and behavioral biases over time such as higher trust in one another long term future orientation in repeated interactions and inclinations toward positive reciprocity of cooperative behavior or negative reciprocity of defecting behaviors these tendencies may evolve through a kind of natural selection within a society over time or group selection across different competing societies in effect they lead groups of individuals to irrationally choose outcomes that are actually the most beneficial to all of them together put together these three factors the repeated prisoner s dilemmas formal institutions that break down prisoner s dilemmas and behavioral biases that undermine rational individual choice in prisoner s dilemmas help resolve the many prisoner s dilemmas we would all otherwise face in the iterated prisoner s dilemma it is possible for both players to devise a strategy that punishes betrayal and rewards cooperation the tit for tat strategy has been determined to be the optimal way for optimizing a prisoner s dilemma tit for tat was introduced by anatol rapoport who developed a strategy in which each participant in an iterated prisoner s dilemma follows a course of action consistent with their opponent s previous turn 2 for example if provoked a player subsequently responds with retaliation if unprovoked the player cooperates 