game theory, in particular, prisoner’s dilemma. Game theory, a mathematical approach to strategic behavior, was stated by John von Neumann and Oscar Morgenstern in 1944 (Farris & Happel, 1987, p. 267). Game theory is useful in analyzing the actions in any strategic situation, from a game of chess to the pricing and output decisions of oligopoly firms where firms cooperate or conflict. The classic game is the prisoner’s dilemma: KateConfess do not confess Confess 6 8 6 1 Jane Do not 1 2 Confess 8 2Numbers are years in prison for each arrested player considering different behaviors of each prisoner. Without interaction with each other, Jane probably will confess that they committed crime, no matter what Kate does, because she will spend the smallest number of years in prison. The same will do Kate. Therefore, both will confess even though it would be better if both do not confess. Of course, the result depends on players’ personalities and on how many times this “game” was played (Farris & Happel, 1987, p. 268). Other results can be that one of them confesses, and another one does not. As a result the one who confesses spends just a year in prison, and that one who denies committing of crime is sentenced for 8 years. And the last result is when both deny and get two years. This happens when the “game” is repeated, so the “players” agreed on this decision before. Oligopolistic firms can also put the prisoner’s dilemma into practice. For example, a group that consists of several firms does not have any economic profit. If they come to an agreement, they can increase price, bou...
