Explain the Prisoner's Dilemma

The Prisoner's Dilemma is an example of a game theoretical model. Game theory is a mathematical tool you can use to try to figure out what people might do in certain situations. In game theory terms, we call people "players" and situations "games". The tables we draw to visualise those games are called "matrixes". The Prisoner's Dilemma story goes as follows; two partners in crime are arrested for a minor crime, with the police suspecting that they have committed a more significant one. They are placed in separate rooms, with no means of communicating. If one suspect confesses, and the other does not, the person who confessed will go free, and their partner will be penalised with a long prison sentence. If both confess, they will both receive a lesser prison sentence. If both stay silent, they will both receive an even lesser prison sentence in penalty for the minor crime they have been convicted of. If we use a diagram and give numbers to the expected outcomes of each choice for both players, we can see what they will choose. Just follow the larger number. When faced with the decision, each player must go with confess because that has the better outcome compared to staying silent no matter what the other person does. You can therefore say that the choice to confess is the "strictly dominating strategy". The important thing to focus on here is that the two players have similar but opposing wills and consequences. Given that both players' 'strictly dominating strategy' is to confess, both players will choose to confess. We call this the "Nash equilibrium" because neither player can make their expected outcome better by making a different choice on their part. As you can see, this confess/confess scenario is actually the worst option mathematically with the lowest combined outcome. It is important to understand the Prisoner's Dilemma when studying oligopolies. You can change the prisoners' dilemma diagram around to be Firm A vs Firm B, and the game to be about them deciding whether or not to lower their prices in order to raise their profits.