Answer to Question #187635 in Microeconomics for Suchita

Question

Think of an example of a decision problem or a game theory problem. This time you

will have to submit the source of the story. You can take it from a newspaper, from

Internet, magazine, book...

1. Submit a photocopy or a printed version of your problem.

2. Simplify the problem and represent it using the concepts of game theory or

decision theory.

3. Solve it.

4. Compare your results with the real-life results.

5. In case the results do not coincide explain why. Which is the element that the

theory does not reflect?

Answer 1

Prisoner's dilemma

Source of the game theory is the internet.

In this game theory two criminals are arrested for a crime they committed. However there is no evidence to convict them and to gain confession the two criminals are questioned separately. The prisoner's have no means to communicate with each other. The officials present four deals.

I)If they both confess, they get five year imprisonment.

ii) If prisoner 1 confesses and prisoner 2 does not, prisoner 1 will receive a three year imprisonment as prisoner 2 gets imprisoned for nine years.

iii) If prisoner 2 confesses and prisoner 1 does not, prisoner 2 gets two years and prisoner 1 ten years of imprisonment.

iii) If none of them confesses, each will serve two years in prison.

The best strategy would be both not to confess but because none is aware of each others strategy, they will both confess thereby getting five years imprisonment each. This is because each is trying to choose what is best for them individually.

This game theory is different from real life results since prisoner's are provoked to respond and others corporate even without being provoked.

The results do not coincide because no actions available to each player at each decision making point.