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Imagine yourself being one of the two players, right now both of you are at the optimal state (cooperation). 

You now have an incentive to cheat and you will do so because it leads to a better outcome for you. 

You counterpart thinks the same way and cheats too. 

Now this results in the worst outcome overall.

The prisoners dilemma is a simple game to prove that collusion is beneficial to both parties if they both trust each other.

For example, suppose that two bank robbers have been caught by the police.  However the police don't have enough evidence to charge them with robbing the bank.  They do however have enough evidence to charge them with a lesser crime such as evading capture.

If neither of them confesses to the police they both get one year in prison.  If they both confess, they both get two years in prison.  If one confesses and the other doesn't, the one that confessed gets rewarded by going free, whereas the one that didn't gets 10 years in prison.  It is similar to 'Split or Steal' on the game show Goldenballs.

It is often used to show how in an Oligopoly both firms are more likely to benefit if they collude.

I hope this helps!

plato.stanford.edu…/prisoner-dilemma/  seems to explain it quite well.


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