This video explains how the prisoner’s dilemma game works. We start by explaining the prisoners’ situation, then we see how to solve the game, and analyse its consequences.
The prisoner’s dilemma is probably the most widely used game in game theory. Its use has transcended Economics, being used in fields such as business management, psychology or biology, to name a few. Nicknamed in 1950 by Albert W. Tucker, who developed it from earlier works, it describes a situation where two prisoners, suspected of burglary, are taken into custody. However, policemen do not have enough evidence to convict them of that crime, only to convict them on the charge of possession of stolen goods.
If none of them confesses (they cooperate with each other), they will both be charged the lesser sentence, a year of prison each. The police will question them on separate interrogation rooms, which means that the two prisoners cannot communicate (hence imperfect information). The police will try to convince each prisoner to confess the crime by offering them a “get out of jail free card”, while the other prisoner will be sentenced to a ten years term. If both prisoners confess (and therefore they defect), each prisoner will be sentenced to eight years. Both prisoners are offered the same deal and know the consequences of each action (complete information) and are completely aware that the other prisoner has been offered the exact same deal (therefore, it’s common knowledge).
Since prisoners cannot communicate and will (supposedly) make their decision at the same time, this is considered to be a simultaneous game, and can be analysed using the strategic form.
Learn more by reading the dictionary entry.