What is Prisoner's Dilemma?

Prisoner's dilemma is an instance in which individuals make decisions based on their own best interests. Thus, their decisions usually provide mediocre results if they are a part of a team. Prisoner's dilemma is especially popular in game theory.

The following is the standard situation of the prisoner's dilemma. It was proposed by mathematicians Melvin Dresher and Merrill Flood. Later it was codified by Albert W. Tucker.

Two criminal gang members are apprehended and held in separate rooms for questioning. There are no other witnesses. The authorities only have enough evidence to convict one of the criminals. However, they can only do that if the other criminal testifies against them. The authorities make a deal with each criminal. They have two options – betraying the other criminal by testifying that he committed the crime; or cooperating with the other criminal by remaining silent.

There could be three potential endings:

• Both criminals end up serving two years each. This would happen if they betray each other.
• Both criminals end up serving one year each. This would happen if they both remain silent.
• One criminal is set free because he betrays the other. However, the other criminal ends up serving three years because he remains silent.

Betrayal is more rewarding than working the other criminal. Thus, it’s reasonable to believe that all completely rational criminals will betray each other. This would leave only one potential outcome: both prisoners betraying one other. On paper, an individual reward should result in a better outcome. However, in the prisoner's dilemma, individual reward results in a worse individual outcome.

Many situations in the economy deal with the prisoner's dilemma. However, over time, a variety of strategies have been established to prioritize the collective good over individual rewards.

In real-life examples, the majority of interactions are repeated multiple times. A prisoner's dilemma can also occur several times. When this happens, it's called an iterated prisoner's dilemma. In this case, individuals are able to apply techniques that provide rewards for collaboration.

The rewards that individuals get can also be modified by using institutional techniques. Prisoner’s dilemma can be guided towards a more collectively advantageous solution by knowing the collective goals. The ability to accomplish cooperative behavior through various sets of rules is also important to reach a solution that is advantageous to a group of individuals.