Diner's Dilemma

DEFINITION of 'Diner's Dilemma'

A game-theory situation with several players. Similar to a prisoner's dilemma, a diner's dilemma occurs when several participants attempt to obtain the highest possible personal reward, but instead find themselves in an unfavorable situation.

The diner's dilemma is based on a situation where several people agree to split the bill before going out to eat. By following a logical course of action, every member of the group finds him- or herself ordering dishes more expensive than what they would normally buy, and they all end up facing the outcome they tried to avoid: a more expensive meal.

BREAKING DOWN 'Diner's Dilemma'

For example, prior to going out for dinner, Steve, Dave and Arthur decide that they will split the bill equally. Since the restaurant offers a wide mix of expensive and reasonably priced items, the three friends are faced with a tough decision. Arthur, who would not normally purchase the expensive items, figures that since his costs will be distributed between the other members, today he can afford to do so. Dave and Steve use the same logical reasoning. As a result, the three friends end up spending more money than they would have liked.

RELATED TERMS
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s ...
  2. Public Good

    A product that one individual can consume without reducing its ...
  3. Free Lunch

    A situation in which a good or service is received at no cost, ...
  4. Iterated Prisoner's Dilemma

    A normal prisoner's dilemma played repeatedly by the same participants. ...
  5. Tit For Tat

    A game-theory mechanism which is subject to a payoff matrix similar ...
  6. Tragedy Of The Commons

    An economic problem in which every individual tries to reap the ...
Related Articles
  1. Active Trading Fundamentals

    Understanding Investor Behavior

    Discover how some strange human tendencies can play out in the market, posing the question: are we really rational?
  2. Investing Basics

    Removing The Barriers To Successful Investing

    Learn how to stop using emotion and bad habits to make your stock picks.
  3. Active Trading Fundamentals

    An Introduction To Consensus Indicators

    Learn how the herd is almost always wrong, or at least late in jumping on the bandwagon.
  4. Options & Futures

    Game Theory: Beyond The Basics

    Take your game theory knowledge to the next level by learning about simultaneous games and the Nash Equilibrium.
  5. Fundamental Analysis

    The Basics Of Game Theory

    Break down and examine the potential consequences of economic/financial scenarios.
  6. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  7. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  8. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  9. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  10. Economics

    The Truth about Productivity

    Why has labor market productivity slowed sharply around the world in recent years? One of the greatest economic mysteries out there.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  3. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  4. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  5. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
  6. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center