Introduction to Game Theory – Prisoners’ Dilemma (Part 2)

This is the second post on the Prisoners’ Dilemma, the first explained the basics of the problem and is here.

One real example of a real Prisoners’ Dilemma is when two companies in a market are deciding how much to spend on marketing. If they both spend nothing on marketing then they will split the sales and make a healthy profit. If one spends money on marketing then they will increase their market share and their profits. But if they both spend the same on marketing then they will still split the sales, the same as if they spend nothing on marketing, but they will make a loss as their costs are higher.

This is a dilemma because one of them is better of if they spend, as long as the other one doesn’t. If they both spend then they are both worse off.

This can also happen with pricing and here is an example of that.

Finally, the idea has been used in game shows and here is a video showing the Prisoners’ Dilemma in action…

Part 3 of this series is here

This entry was posted in Game theory, Introduction and tagged , , . Bookmark the permalink.

One Response to Introduction to Game Theory – Prisoners’ Dilemma (Part 2)

  1. David says:

    The video, while similar to it, does not demonstrate a PD. In PD there is only one Nash Equilibrium but in the gameshow there are 3. For it to be a
    PD, a steal-steal outcome would result in an amount less then in a split-split but still greater then zero.

Comments are closed.