Utilizing Prisoner’s Dilemma In Business And The Economy
This article starts off by explaining the Prisoner’s Dilemma. It explains that due to self interest, both parties involved in the game will choose to confess. It then applies this game to the real world of business by describing a rivalry between Coke and Pepsi in a similar game. The dominant strategy in this game is defecting (lowering prices) because if the other company does not do the same, the company that lowered prices takes all the revenue making it earn even more profit. If the other company decides to lower their prices, then, both companies must do so or the same situation applies vice versa. As a result, both companies end up lowering prices which decrease profit from what they started at. The article goes on to describe a similar situation in politics in regard to the Democrats and Republicans where the payoffs are in electoral votes and then goes on to describe a situation in which the everyday person can relate to.
The hypothetical situation in the Prisoner’s Dilemma might not be 100% applicable in real life because conditions might not always be ideal to have a dominant strategy. However, like the article states, it can be applied in real life situations to maximize payoffs regarding a decision. Although creating the game set up might not always be practical, thinking in similar ways could be rewarding. Applying the Prisoner’s Dilemma shows that cooperating with the other “player” might not always be the best strategy as one would normally expect. Dissenting from agreements sometimes turns out to be the best strategies.
Source: http://www.investopedia.com/articles/investing/110513/utilizing-prisoners-dilemma-business-and-economy.asp