The prisoner's dilemma is a game theory scenario that models risks and strategies for making decisions in competition. Competitors can, through trust and cooperation, yield the optimum potential solution for both players. Conversely, they can take more risk to potentially get a better payoff while their competitors fare worse. The non-zero sum game has applications in business, economics, politics, sociology, psychology and other fields.
Here's the situation: Two accomplices have been arrested for a crime but neither has confessed. The two have no means of communication and have not discussed in advance what they will do if they are apprehended. The police interrogate them separately, offering three alternatives: If both confess, they will each face a two-year sentence. If only one confesses and agrees to testify against his accomplice, that individual will go free and the accomplice will be jailed for three years. If neither confesses, they will both be charged with a lesser offense and will both go to jail for a single year.
By quantifying the potential benefits of each decision, the prisoner's dilemma clearly illustrates that the best overall outcome, in terms of total years served, results from cooperation rather than pursuing self-interest. One individual could confess, hoping that his accomplice had not made the same decision and that he would be set free. However, the risk is that his accomplice would also have confessed and they both might end up with a two-year sentence when they might have served a single year instead. Furthermore, if one person confesses and testifies against his accomplice, the confessor may face retribution and may also have difficulty finding partners in crime in the future, since he may be considered untrustworthy.
The prisoner's dilemma also illustrates why people often don't cooperate even when it's in their best interests. For example, some might decide that the potential payoff for the most selfish choice (immediate freedom for confessing and agreeing to testify) makes the risk worthwhile. Predatory pricing and other unscrupulous business practices are analagous to that strategy.
Melvin Dresher and Merrill Flood developed the prisoner’s dilemma scenario at the Rand Corporation in 1950. Albert William Tucker, a mathematician at Princeton, gave the scenario its name. Another game theory concept, coopetition, was conceived to help determine when cooperation among competitors would be more beneficial.