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P risoner's dilemma

P risoner's dilemma. Two suspects A, B are arrested by the police. The police have insufficient evidence for a conviction, and having separated both prisoners, visit each of them and offer the same deal:

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P risoner's dilemma

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  1. Prisoner's dilemma • Two suspects A, B are arrested by the police. • The police have insufficient evidence for a conviction, and having separated both prisoners, visit each of them and offer the same deal: • If one testifies for the prosecution (turns King's Evidence) against the other and the other remains silent, the silent accomplice receives the full 10-year sentence and the betrayer goes free. • If both stay silent, the police can only give both prisoners 6 months for a minor charge. • If both betray each other, they receive a 2-year sentence each. • This can be summarized:

  2. The Dilemma • Each prisoner has two options: • to cooperate with his accomplice and stay quiet, • or to betray his accomplice and give evidence. • The outcome of each choice depends on the choice of the accomplice. However, neither prisoner knows the choice of his accomplice. • The optimal solution would be for both prisoners to cooperate with each other, as this would reduce the total jail time served by the group to one year total. • Any other decision would be worse for the two prisoners considered together. However by each following their individual interests, the two prisoners each receive a lengthy sentence.

  3. Prisoner's dilemma(Corporate Setting) • Two officers of the corporation – the CEO and the Comptrollerare arrested for Financial Reporting fraud • The police have insufficient evidence for a conviction (they didn’t take my course) and having separated both prisoners, visit each of them and offer the same deal: • If one testifies for the prosecution against the other and the other remains silent, the silent accomplice receives the full 10-year sentence and the betrayer goes free. • If both stay silent, the police can only give both prisoners 6 months for a minor charge. • If both betray each other, they receive a 2-year sentence each. • This can be summarized:

  4. The Deal (another view) • Or stated differently • Here is how the deal will look to the CEO and the Comptroller

  5. The Deal • Or stated differently • Here is how the deal will look to the CEO and the Comptroller

  6. Why Ethics are Important! • The prisoner's dilemma is a type of non-zero-sum game • it is assumed that each individual player ("prisoner") is trying to maximize his own advantage, without concern for the well-being of the other players. • In Econo-speak: The Nash equilibrium for this type of game does not lead to Pareto optimums (jointly optimum solutions) • Each side has an individual incentive to cheat even after promising to cooperate. This is the heart of the dilemma. • In the iterated prisoner's dilemma the game is played repeatedly. • Thus each player has an opportunity to "punish" the other player for previous non-cooperative play. • Cooperation may then arise as an equilibrium outcome. • The incentive to cheat may then be overcome by the threat of punishment, leading to the possibility of a superior, cooperative outcome. • As the number of iterations approach infinity, the Nash equilibrium tends to the Pareto Optimum, because when you face eternity the threat of grudges is a grave one indeed

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