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Applications of Prisoner’s Dilemma for Economics Students in Schools and Colleges!

by Apr 3, 2018Homework Answers

The term ‘prisoner’s dilemma’ is highly disguising as it seems to come straight out of a crime thriller.
But the fact is that it is a study of strategical decision making, having wide applications in psychology, economics, and political science.
What is prisoner’s dilemma?
Prisoner’s dilemma is a representation of decision-making scenario where two individuals are asked to take decisions separately. They have the option to co-operate with each other or to counter each other. This theory shows the significance of co-operation. As part of curriculum, economics students get to solve prisoner’s dilemma homework answers.
The Game theory
Prisoner’s dilemma is essentially an example of games studies in game theory. Game theory is the study of mathematical models of decision making analysis. The conflicts and co-operations by decision makers are depicted in a graphical manner. It is used in economics to study behavioral patterns of individuals. It studies the logicality of decision making of humans.
Decoding dilemmas
Prisoner’s dilemma is best explained using the classic example of convicts in captivity. We take an example of two arrested criminals, X and Y. They are kept in separate rooms for interrogation. They are not allowed to communicate with each other. The prosecution is questioning both of them hoping that at least one of them will confess.
Prosecution is not having sufficient evidence to implicate them. So the fate of prisoners will depend on their statements. There can be three different scenarios resulting from their statements.

  • If X accuses Y and Y remains silent, X will be freed, and Y gets an imprisonment of 5 years. This happens vice versa also, i. e. if Y accuses X and X remain
  • If both accuse each other, both of them will be sentenced to 4 years imprisonment.
  • If both remain silent, they can both get away with a minimum imprisonment of 1 year.

Now, in this case, each prisoner will be in utter confusion as to what course to follow. If he tries to free himself by cheating the other person, he might end up in a worse position. The best thing to do would be to remain silent. If both the prisoners are silent, they get the least punishment. Whereas, if they try to protect only their interests, it might be detrimental to both. Understanding the alternatives in this decision making is the key to prisoner’s dilemma homework answers.
Applications in economics
The concept of prisoner’s dilemma has its applications in business and economics.

  • Pricing decisions:

Pricing policies of companies are one of the areas where this psychology is largely reflected. Suppose there are two soft drink giants in the consumer market. Together, they control almost entire market for soft drinks.
A price decrease by one is bound to adversely affect the customer base of the other company as more customers will switch to the low priced brand. But in the long run, it will end up in reduced profits. On the other hand, if both collaborate and keep prices at relatively high and stable level, consumers are left with no better choice.
This gives a major share of profit to both competitors. While solving prisoner’s dilemma homework answers, students should bear in mind the philosophy behind pricing decisions.

  • Advertising budgets:

Sales of products will depend not only on its quality but also on the amount spent on advertising. Advertising is aimed at creating a positive attitude in the minds of consumers towards the product. If a company decides to outperform its competitor by spending more on advertisements, it might have a positive impact on sale of its products.
But it will increase expenses in the long run. At the same time, if amount of advertising is too less, competitor will benefit. So keeping the advertising expenses at an optimum level will be beneficial for both. This shows that collaboration is always better than conflict.
Underlying principle
Knowing the underlying conclusion of prisoner’s dilemma will help students in prisoner’s dilemma homework answers. The theory is intended to show that acting in self-interest may not always be the best option.
Though individuals think rationally in protecting their interests as against their foes, the effects of this may be more harmful. It will be best for individuals and concerns to take collective decisions where interests of all are protected.
Real-life instances of application
While going deep into the various aspects of prisoner’s dilemma, we find several instances where it is reflected.

  • Some nations pile up nuclear weapons in attempt to protect their country. It has been proved to be against the interest of such countries as they face severe consequences in the form of sanctions.
  • Nations not restricting emissions of greenhouse gases is another example of this. Governments do not want to curb this as it will affect industrial sector. But in long run, it is likely to do more harm than good.
  • Athletes have been using drugs to score over others in performance, which will be detrimental to their future.
  • Britain’s exit from European Union is intended to benefit Britain by capturing more European market. The country might face lots of hardships as a result of this decision. Instead, if both sides decide to find a mutually beneficial agreement, it could be the best.

Ways to master prisoner’s dilemma homework answers
As seen, this concept has variety of implications in economics. For achieving expertise in the topic, students need to take efforts.

  • Study in tandem:

Prisoner’s dilemma is not an isolated study. It is closely related to pricing and demand theories. To understand this properly, students have to study it in tandem with other economics principles. Otherwise, it won’t make any sense to them.

  • Practise to perfection:

There are practical problems based on these principles which bother students to no end. The only solution to this is to plunge into practice problems as much as you can. Never shy away from doing them even if they look intimidating. Through practise, you can master the concepts.

  • Go for groups:

Study groups are the forums where students get to discuss freely. They can ask doubts to their peers and also share information they get. Information exchange happening on student forums helps in bringing clarity to confusing topics.

  • Get external help:

There are educational help websites which can be useful in understanding prisoner’s dilemma concepts. Some of them have practise tests also.
No need for dilemma
Though the topic of prisoner’s dilemma needs a thorough study, it has practical applications in managerial economics. Therefore, it is imperative that students acquire a good knowledge of it. With teachers and educational websites to help out, it will not be a hard task.