Prisoner's Dilemma

In the standard story, two suspects are arrested and questioned separately. If both stay silent, each gets a short sentence. If one confesses and the other stays silent, the one who confesses goes free and the other gets a long sentence. If both confess, both get medium sentences.

Whatever the other suspect does, each is better off confessing. So both confess and receive medium sentences, even though both staying silent would have given each a shorter sentence. Rational individual choices lead to a worse outcome for both.

For example, two competing companies might both be better off keeping prices high, but each has an incentive to cut prices to win customers. If both cut, both earn lower profits.

The prisoner's dilemma helps explain price wars, arms races, overfishing and difficulties in tackling climate change. Cooperation is more likely when the game is repeated many times, allowing players to build trust and punish betrayal, or when agreements can be enforced.