The prisoner’s dilemma is one of the concepts in game theory, a mathematical and logical method of analyzing (i)rational decisions that people make. Prisoner’s dilemma explains what can technically be viewed as a paradox, or a phenomenon that has inherent logical contradictions.

## To Cooperate, Or Not To Cooperate

To be slightly more specific about the nature of this dilemma: it is a variable sum game, where two persons find themselves in a noncooperative scenario. To understand what this concept is, we need to take it quite literally and imagine a situation where two persons are facing jail time. Will they walk free, or they are getting locked up - it is all about how they approach the matter of cooperation.

So, two people are being accused of committing a crime that will put them in prison for 10 years. Two prisoners are put in separate interrogation rooms, and they can not ever know what their partner-in-crime is saying to the police. In the prisoner’s dilemma, one has to figure out what is the best option: to come clean and admit or to remain silent, as there are four possible outcomes for the perpetrators.

## Possible Outcomes Of The Prisoner’s Dilemma

The first possible outcome is if they both confess, both of them will go to jail for three years. In the second outcome, where neither of them confesses, they will both go to jail for just one year. The third outcome happens if prisoner 1 confesses, and the other remains silent - he will walk free, while his partner will get the maximum jail time of 10 years. Finally, on the flip side, if prisoner 2 admits the crime, he is free, and prisoner one is locked down for a decade.

The specific nature of this decision-making phenomenon lies in the fact that most damage, meaning longest jail time, is done when two prisoners decide not to cooperate with one another. Indeed, it is a tough situation to cope with, as the one thing that they can not ever change is knowing what the other one is saying. Also, the fact that noncooperation would be the best possible choice for the two prisoners makes this situation even more ambiguous.

To summarize, the prisoner’s dilemma is made in such a way that both prisoners choose to protect themselves, instead of looking out for one another. By doing so, the outcome is bad for both of them.

## Other Applications Of Prisoner’s Dilemma

Game theory, in general, has often been used to explain the fluctuations that happen in trade and business affairs. Prisoner’s dilemma, in particular, can speak a lot about what are some of the underlying forces that change our perception of profit, competitive prices, and views on the market in general.

For example, imagine that two stores are selling the same product. Managers of both stores are aware of the fact that lowering the price of the product in hand would attract more customers. The rules we discussed before are present here as well: both managers would choose to lower their prices, and by doing that, neither of them would gain an advantage over the other.