Prisoner's Dilemma

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DEFINITION of 'Prisoner's Dilemma'

A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.

BREAKING DOWN 'Prisoner's Dilemma'

Suppose two friends, Dave and Henry, are suspected of committing a crime and are being interrogated in separate rooms. Both individuals want to minimize their jail sentence. Both of them face the same scenario: Dave has the option of pleading guilty or not guilty. If he pleads not guilty, Henry can plead not guilty and get a two-year sentence, or he can plead guilty and get a one-year sentence. It is in Henry's best interest to plead guilty if Dave pleads not guilty. If Dave pleads guilty, Henry can plead not guilty and receive a five-year sentence. Otherwise he can plead guilty and get a three-year sentence. It is in Henry's best interest to plead guilty if Dave pleads guilty. Dave faces the same decision matrix and follows the same logic as Henry. As a result, both parties plead guilty and spend three years in jail although through cooperation they could have served only two. A true prisoner's dilemma is typically "played" only once; otherwise it is classified as an iterated prisoner's dilemma.

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