Applied Game Theory in Politics
The Prisoner's Dilemma is a classic example of game theory in which two individuals acting in their own self-interests do not produce the optimal outcome. The game is set up so that each player must decide whether to cooperate with the other player or defect.
The payoff matrix looks like this:
| | Player B Cooperates | Player B Defects | |------------|--------------------|-----------------| | Player A Cooperates | -1, -1 | -10, 0 | | Player A Defects | 0, -10 | -5, -5 |
Each player is faced with the decision to either cooperate or defect. If both players cooperate, they both receive a payoff of -1. If both players defect, they both receive a payoff of -5. If one player cooperates and the other defects, the defector receives a payoff of 0 while the cooperator receives a payoff of -10.
The optimal outcome would be for both players to cooperate, but because each player is acting in their own self-interest, they will both choose to defect. This leads to a suboptimal outcome where both players receive a payoff of -5.
This scenario can be applied to many real-world situations, such as arms races between countries or price wars between companies. When both parties are acting in their own self-interest, the outcome is often not optimal for either party.
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