ECON 1108 Lecture 3: Econ 1108 lecture 3
Document Summary
Prisoner 1 and 2 are arrested and charged. Both taken to separate rooms, police don t have enough to convict so they make a deal to each confessing to the bank robbery and receiving a lighter sentence. If both cooperate can be convicted of posession of stolen goods, each getting sentence of 2 years. If both defect, they are convicted of bank robbery, get 4 years. If one cooperates and 2 defects, 2 gets immunity and 1 gets 10 years. If 2 cooperates and one defects, 1 gets immunity and 2 gets 10 years. Prisoners must hand the da their strategies simultaneously. Both better off ratting for possibility of 0 years. Both players need to have a dominant strategy, and if each of their dominant strategies is the same they will be in equilibrium. Both players better off if both played c than if both play d but reason dictates that each play d.
