Prisoner’s Dilemma in Economics

In the modern economy, where there is a strong correlation between business undertakings and profit, the profit of a subject depends not only on its behaviour, but also on the behaviour of other participants in the decision making process. Therefore, the decision maker should analyze the strategies that have been chosen or will be chosen by his opponents, but also to perform analysis of  the strategies that other decision makers will choose in a response to the strategy which has yet to be chosen. To select an optimal strategy, on the oligopolistic market, decision makers can use game theory.

Man in cell

Game theory is a mathematical theory that is used for analysis and solving of conflict situations, in which participants have opposing interests. The concepts of game theory provide a tool for formulating, analyzing and understanding different strategies. It attempts to address the functional relationship between the selected strategies of individual players and their market outcome, which may be either profit or loss.

In this paper the key aspects of game theory have been used to show how it can be implemented for understanding the development and functioning of the oligopoly market and how managers need to think about the strategic decisions.

Image Credit: telegraph.co.uk

Post Contributed By:

Abhishek Bhargava

Indian Institute Of Legal Studies

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