The correct answer is A. Prisoner’s dilemma.
A prisoner’s dilemma is a standard example of a game analyzed in game theory that shows why two individuals might not cooperate even when it appears that it is in their best interests to do so. The dilemma is best explained with an example.
Imagine that two criminals, A and B, are arrested and taken to separate rooms. The police do not have enough evidence to convict either of them of the crime they are suspected of committing, but they do have enough evidence to convict them of a lesser crime. The police offer each criminal the following deal:
- If you confess and your partner does not, you will go free and your partner will receive the maximum sentence.
- If you both confess, you will both receive a reduced sentence.
- If you both remain silent, you will both receive a light sentence.
Each criminal knows that the best outcome for them is to confess and have their partner remain silent. However, if both criminals confess, they will both receive a worse outcome than if they had both remained silent. This is because the police are able to use the confessions to secure a conviction for the more serious crime.
The prisoner’s dilemma is a useful model for understanding oligopoly, a market structure in which a small number of firms compete. In an oligopoly, each firm has a choice of whether to cooperate with the other firms or to compete aggressively. If all firms cooperate, they can all earn a high profit. However, if one firm competes aggressively, it can increase its own profits at the expense of the other firms.
The prisoner’s dilemma shows that firms in an oligopoly may not cooperate even when it is in their best interests to do so. This is because each firm has an incentive to defect from the agreement and compete aggressively. If one firm defects, the other firms will have no choice but to compete as well, or else they will be at a disadvantage.
The prisoner’s dilemma is a powerful tool for understanding why firms in an oligopoly may not cooperate even when it is in their best interests to do so. It is also a useful model for understanding other types of strategic interactions, such as arms races and environmental pollution.
The other options are incorrect because they do not accurately describe the prisoner’s dilemma.
- Monopoly cell is not a term used in game theory.
- Jailhouse sentence is a term used to describe the punishment that a prisoner receives.
- Jury box is a box in which jurors sit during a trial.