Ch 41. Game Theory: The Prisoner’s Dilemma

In modern economics, individual and corporate decisions are never made in a vacuum. Will a rival firm cut its price? Will an accomplice confess? Game Theory is the discipline that analyzes strategic choices in exactly these kinds of mutually interdependent situations.

1. The Payoff Matrix

In the Prisoner’s Dilemma, the payoffs for each combination of choices are as follows:

Prisoner's Dilemma Payoff Matrix
	B Cooperates	B Defects
A Cooperates	(3, 3) - Best outcome	(0, 5)
A Defects	(5, 0)	(1, 1) - Equilibrium

2. Interactive Game Simulation

Play the game against an AI. When the AI’s strategy is set to “Tit-for-Tat,” it starts by cooperating — but the moment you defect, it retaliates immediately.

GAME THEORY죄수의 딜레마 게임

플레이어 점수

AI 점수

3. Dominant Strategy and Nash Equilibrium

Dominant Strategy: The choice that is best for you regardless of what the other player does. In this game, “Defect” is the dominant strategy.
Nash Equilibrium: A state where, given the other player’s strategy, neither player has any incentive to change their own. (Defect, Defect) is the Nash Equilibrium of this game.

Pareto Inefficiency: The tragedy of the Prisoner’s Dilemma is that while each individual rationally chooses to “Defect,” both end up worse off than if they had both “Cooperated.”

Game theory is a framework for explaining countless social phenomena — oligopoly collusion, nuclear arms races, environmental protection agreements, and more. Use the simulator to feel firsthand the delicate balance between betrayal and cooperation.

Economics Ch41. Game Theory: The Prisoner's Dilemma — The Economics of Cooperation and Betrayal