Prisoner's Dilemma

Overview

Imagine two companies locked in a competition where cooperation could lead to better outcomes for both—but self-interest might drive them toward a worse result. That’s the prisoner’s dilemma, a foundational concept in game theory.

Key Components

Used in economics, business strategy, and even international relations, it helps explain why rational individuals might choose actions that lead to collectively worse outcomes. The visual model shows two players with two choices each, revealing outcomes based on cooperation or betrayal.

How to Apply

By analyzing these scenarios, businesses can anticipate rival moves and design strategies that encourage collaboration. Understanding this framework can lead to smarter decisions in negotiation, pricing, and long-term partnerships.

Key Insight