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Prisoner’s Dilemma and the Holiday Season

https://theconversation.com/how-to-apply-game-theory-to-buying-your-christmas-presents-52233

At approximately this time of year, people begin shopping for holiday gifts for their friends. This can be a sometimes confusing situation when a person is not sure if they are exchanging with a particular friend, because a gift that is not reciprocated becomes awkward. Furthermore, the act of gift-giving can be modeled as a payoff matrix. Each friend is a player in this two-person matrix that displays the costs and benefits of giving and receiving a gift. Thus, the holiday season truly becomes a prisoner’s dilemma.

This article from theconversation.com draws out this payoff matrix, with E being the enjoyment received from the gift, and C being the cost of the gift. If neither person gives a gift, the payoff is 0 for both individuals because there is no cost nor enjoyment. On the other hand, if you are caught receiving a gift and not reciprocating it, you receive the enjoyment of the gift, and the giver receives a negative benefit only, which is the cost of the gift. If both players give gifts, each receives E-C for their gift, which is their enjoyment minus their cost. The reason that this is a prisoner’s dilemma is that neither player knows what the other is going to do. In the classic example of two prisoners, the prisoners are in separate rooms and have to make decisions independently, which is precisely what one must do when deciding whether or not to buy a gift for their friend.

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