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Chapter 10: Q.12 (page 252)

Does each individual in a prisoner鈥檚 dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.

Short Answer

Expert verified

Yes, each individual in a prisoner's dilemma benefits more from cooperation rather than from pursuing self-interest.

Step by step solution

01

Step 1. Definition

The prisoner's dilemma is a situation in game theory when the benefits or payoffs from cooperation are greater than the gains from pursuing self-interest.

02

Step 2. Explanation

Consider two criminals are captured and questioned separately. If neither of them testifies against the other, they will serve a prison term. If one of them testifies against the other, the person who testifies will receive a lesser punishment while the other will receive a greater sentence. suppose they both testify against each other, they will both receive the maximum penalty. The greatest benefit or reward is obtained when both parties collaborate and do not testify against each other, rather than when they both act in their own self-interest and testify against each other.

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Most popular questions from this chapter

Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies?

Will the firms in an oligopoly act more like a

monopoly or more like competitors? Briefly explain.

Mary and Raj are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn \(100. If they decide to work together and both lower their output, they can each earn \)150. If one person lowers output and the other does not, the person who lowers output will earn \(0and the other person will capture the entire market and will earn \)200. Table 10.6represents the choices available to Mary and Raj. What is the best choice for Raj if he is sure that Mary will cooperate? If Mary thinks Raj will cheat, what should Mary do and why? What is the prisoner鈥檚 dilemma result? What is the preferred choice if they could ensure cooperation? A = Work independently; B = Cooperate and Lower Output. (Each results entry lists Raj鈥檚 earnings first, and Mary's earnings second.)

RAJ MARY
(A) (B)
(\(100,\)100) (\(200,\)0)
(\(0,\)200) (\(150,\)150)

Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm

(Firm A) is large and the other firm (Firm B) is small, as the prisoner鈥檚 dilemma box in Table 10.4 shows.


Firm B colludes with firm AFirm B cheats by selling more output
Firm A colludes with firm B
A gets \(1000,B gets \)100A gets \(800, B gets \)200
Firm A cheats by selling more outputA gets \(1050, B gets\)50A gets \(500, B gets \)20

Assuming that both firms know the payoffs, what is the likely outcome in this case?

Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, 鈥淲hat is the right amount of variety? Can there be too many varieties of shoes, for example?鈥�
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