The Prisoner’s Dilemma is a situation analysed in game theory that can be seen as an application of the Nash Equilibrium.
In the game, two criminals are arrested, and each is held in solitary confinement. The prosecutors do not have the evidence to convict the pair, so they offer each prisoner the opportunity to betray the other by testifying that the other committed the crime (defects) or remaining silent (cooperate). If both criminals betray each other, each serves five years in prison. If A betrays B but B remains silent, prisoner A is set free, and prisoner B serves ten years in prison or vice versa. If each remains silent, then each serves just one year in prison.
The Nash equilibrium in this example is for both players to betray each other. Even though mutual cooperation leads to a better outcome, none of the prisons can trust each other, leading to the inability to collude.
Advertising campaigns and the ice cream vendor problem on the beach are typical examples of this game.
References
- Wikipedia Contributors (2019). Prisoner’s dilemma. [online] Wikipedia. Available at: https://en.wikipedia.org/wiki/Prisoner%27s_dilemma.