Sunday, September 23, 2012

Would you ever tell on your friends?

Good morning economists and have a great week. Have you ever caught yourself in a situation that you did something you shouldn't have done and you are worried that a friend of yours will tell on you? Of course you have! Our childhood years are filled with such experiences. Today I would like to focus on game theory economics and more specifically Prisoner's dilemma. Consider the following scenario:

Two thieves are arrested for burglary. They are put in separate rooms and are interrogated.

If both thieves confess they will each be punished with 6 years imprisonment. If A tells on B but B stays quiet then A will be set free and B will be punished with 10 years imprisonment. The reverse will happen if B tells on A and A stays quiet. If neither confesses they will both receive 2 years as punishment.

The weird outcome of this game is that the tendency for people is to confess, in other words to turn on each other. This is because A knows that no matter what he chooses B is better off ratting him out. The same applies for thief B in reverse. The prisoner's dilemma has several applications like in periods of diplomatic or business negotiations and even at work during evaluation periods.

Would you ever tell on your friend? Have a nice day!


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