![]() To avoid the worse-case scenario (10 years), the safest option is to confess and get 3 years. The dilemma is that their own ‘pay-off’ is wholly dependent on the behaviour of the other prisoner. ![]() What would you do if you were one of them? Give an answer before you read on. They know that if they both deny the serious offence they are certain to be found guilty of the lesser offence, and will get a 2 year sentence. However, each is also told that if he confesses and his partner does not, then he will get a light sentence of 1 year, and his partner will get 10 years. The optionsĮach is told that if they both confess to the serious crime they will receive a sentence of 3 years. The police officer tries to get them to confess to the serious crime by offering them some options, with possible pay-offs. Robin and Tom are placed in separate rooms and cannot communicate with each other. They have been arrested for a petty crime, of which there is good evidence of their guilt – if found guilty they will receive a 2 year sentence.ĭuring the interview the police officer becomes suspicious that the two prisoners are also guilty of a serious crime, but is not sure he has any evidence. Tucker when providing a simple example of game theory.Īs you read the scenarios, you can play the part of one of the prisoners. The name ‘Prisoner’s Dilemma’ was first used in 1950 by Canadian mathematician, Albert W. The Prisoner’s Dilemma is a simple game which illustrates the choices facing oligopolies. In applying game theory to the behaviour of firms we can suggest that firms face a number of strategic choices which govern their ability to achieve a desired pay-off, including:ĭecisions on price and output, such as whether to:ĭecisions on products, such as whether to:ĭecisions on promoting products, such as whether to:įirms could derive a range of possible pay-offs from their strategy choices, including: Strategies, which influence the decision making process.Rules, which govern conduct of the players.Game theory has been widely applied to the behaviour of producers with a few or only one competitor. However, it was with the publication in 1944 of John von Neumann and Oskar Morgenstern’s The Theory of Games and Economic Behaviour that the modern principles of game theory were formulated. Game theory is widely regarded as having its origins in the mid-nineteenth century with the publication in 1838 of Augustin Cournot’s Researches into the Mathematical Principles of the Theory of Wealth, in which he attempted to explain the underlying rules governing the behaviour of duopolists. ![]()
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