Ch. 3 from Art of Strategy
As Dixit and Nalebuff (2008) show, the prisoners dilemma is a classic example of game theory, in which two players must choose between cooperation and competition. The traditional formulation of the prisoners dilemma goes as follows: two criminals are arrested and interrogated separately. If both criminals cooperate and confess, they will each receive a light sentence. However, if one criminal confesses while the other remains silent, the confessor will go free while the silent criminal will receive a heavy sentence. If both criminals remain silent, they will each receive a moderate sentence. As you can see, there is a strong incentive for both criminals to confess, even though it is not in their best interest to do so.
What makes the chapter interesting is that it shows how prisoners dilemma can be applied to many real-world situations. For example, it can be used to explain why companies compete against each other even when it would be more profitable for them to cooperate. It can also be used to understand why countries go to war even when it would be better for them to remain at peace. In short, the prisoners dilemma is a valuable tool for understanding human behavior.
What I found debatable is whether it accurately represents real-world interactions. One might argue that it does not take into account important factors such as trust and reputation. Another could argue that the prisoners dilemma does capture the essence of many real-world interactions, in which self-interest often trumps cooperation.
Still, I have seen the dilemma applied in reading, for example, in The Hobbit, when the dwarves are imprisoned by the elf king, who wants them to confess the purpose of their journey. It is only Bilbos help that keeps all of them from confessing and betraying the group. This could be viewed as the tension between punishment vs. cheating in the theory.
References
Dixit, A. & Nalebuff, B. (2008). The art of strategy. W.W. Norton.
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