A prisoner's dilemma is a situation where individual decision makers always have an incentive to choose in a way that creates a less than optimal outcome for the individuals as a group. Prisoner's dilemmas occur in many aspects of the economy. The prisoner's dilemma is a game analyzed in game theory that shows why two individuals might not cooperate, even though it is in their best interests to cooperate. Prisoner's dilemma is a paradox in decision analysis in which two individuals acting in their own self-interests do not produce the optimal outcome. It might seem that the paradox inherent in prisoner's dilemma could be resolved if the game were played repeatedly. Players would learn that they do best when both act unselfishly and cooperate.

The label prisoner's dilemma may be applied to other situations. Two entities could gain important benefits from cooperating or suffer from the failure to do so. There are many examples in human interaction as well as interactions in nature that have the same payoff matrix. The prisoner's dilemma is useful in economics, politics, and sociology.

The prisoner's dilemma was originally framed by Merrill Flood and Melvin Dresher. The Prisoner’s Dilemma is a classic example of a mathematical game, dating back to 1950. The prisoner's dilemma is one of the well-known concepts in modern game theory. Albert W. Tucker formalized the prisoner's dilemma game with prison sentence rewards.

Two criminal gang members are caught and imprisoned, each in solitary confinement with no means of mutual communication. The police authorities do not possess sufficient evidence to convict them on the principal charge, but have enough to convict the duo on a lesser charge. The plan is to sentence both to a year in prison on a lesser charge.

The police offer each prisoner a Faustian bargain. If one testifies against his partner, he will go free while the partner will get three years in prison on the main charge. If both prisoners testify against each other, both will be sentenced to two years in jail.

In this prisoner's dilemma game, collaboration is dominated by betrayal; if the other prisoner chooses to stay silent, then betraying them gives a better reward, and if the other prisoner chooses to betray then betraying them also gives a better reward. The only possible outcome for two purely rational prisoners is for them both to betray each other.

This Prisoner's Dilemma game result is that pursuing individual reward logically leads the prisoners to both betray, but they would get a better reward if they both cooperated.

There is also an extended iterative version of the game, two purely rational prisoners will betray each other repeatedly. In an infinite or unknown length game there is no fixed optimum strategy, and Prisoner's Dilemma tournaments have been held to compete and test algorithms.

Advertising is a real life example of the prisoner’s dilemma. Cigarette manufacturers endorsed the creation of laws banning cigarette advertising because this would reduce costs and increase profits across the industry.

**Costly Advertising and
the Evolution of Cooperation**

Abstract: In this paper, I investigate the
co-evolution of fast and slow strategy spread and game strategies in populations
of spatially distributed agents engaged in a one off evolutionary
prisoner's dilemma game.
Agents are characterized by a pair of traits, a game strategy (cooperate or
defect) and a binary ‘advertising’ strategy (advertise or don’t advertise).

In sports, If both athletes take drugs, the benefits cancel out and only the drawbacks remain.

**Lance Armstrong and the Prisoners' Dilemma of
Doping in Professional Sports** -
bruce-schneier. wired.com.

**What it Takes to Be on Top: The Prisoner’s
Dilemma of Athletics**

Cheating in college athletics and the
prisoners-dilemma. - Patrick Rishe.

The problem
surrounding cheating in athletics can be explained by the principle of the
prisoner’s dilemma, where two individuals (or teams of individuals), acting in
their own best interest, are drawn to make a decision that does not necessarily
result in the best outcome for either party.

athletes at the college-and
professional- level who are rewarded with scholarship, money, endorsement deals,
and fame, but under one condition: they continue to perform at (and above) the
highest level of competition.

The big question is how school regulators can eliminate this prisoner’s dilemma. The article argues that the way the college athletic system is set up, with such high incentives to cheat, athletes are driven to cheat in order to stay in the game. The article suggests one possible solution is to instate widespread crackdowns in the hope that this will discourage athletes from cheating. The article concludes, “the guiding principles of the Prisoner’s Dilemma dictate that missteps and misdeeds will abound” in the world of college sports.

If two countries chose to arm, neither could afford to attack each other, but the cost is high. If both countries chose to disarm, war would be avoided and there would be no costs. If one country disarmed while the other continues to arm, then there is a problem. The 'best' outcome is for both countries to disarm, but the rational course for both countries is to arm.

**The Cold War and
Prisoner’s Dilemma**

Both
the Soviet and the United States used 'prisoner’s
dilemma' to form war strategies during Cold War.
The two nations did not conduct major fights, but they armed heavily in
nuclear weapons. A balance would strike when the two nations have similar amount
of nuclear weapons and vulnerabilities, since nuclear war would be devastating
for both of them. According to prisoner’s dilemma, the two nations are
only concerned about their own interest. Suppose the United States and Soviet
Union can both choose from preparing 100 units of weapons and 0 units of
weapons. From the Unites States’ point of view, preparing 100 units would be a
better choice regardless of the Soviet Union’s decision. Same works for the
Soviet Union. The optimal outcome can only be reached when both
countries prepare 0 unit of weapons, against what happened in real life: both
nations prepare 100 units of weapons. The real-life outcome is a Nash
Equilibrium, which is logical yet not optimal.