Question

For this assignment, please come up with a diagram (i.e. using a two-player decision matrix such as the Prisoner’s Dilemma example in the Learning Notes) for an original game theory/prisoner's dilemma scenario (either in business, politics, or your own personal life), and explain what would be the most likely outcome of the scenario you have chosen.

Answer 1

PRISONNER"S DILEMMA GAME:

It is one of the most famous game in Game Theory. There exists two person: Prisoner1 and Prisoner2 who are suspected for a crimimal activity. Both are kept in Jail for the initial prosecution. Both cannot communicate with each other. There is a punishment rule based on the verdict that both prisoners have given to the policeman.

Each prisoner has the chance to remain silent when asked about the crime (cooperate) or to betray each other.  

Following is the punishment criteria:

1. If prisoner 1 and 2 betray each other, then both serves 2 years in prison.

2. If 1 choose to betray 2 and 2 keeps silence, then 2 will serve 3 years in jail and 1 will get out of the jail (vice-versa)

3. If both remains silent, then both gets 1 year in prison.

The above scenario is shown in the below payoff matrix:

FINAL OUTCOME:

The best response from both the individuals should be to remain silent and to co-operate (serving 1 year of Jail). This would be the Nash Equilibriuim of the game. However, both the prisoners have no loyalty and choose to betray each other and arriving at a sub-optimal outcome of serving 2 years of Jail.