Principles of Economics- Mankiw (5th) 349

Principles of Economics- Mankiw (5th) 349 - CHAPTER 16 O L...

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CHAPTER 16 OLIGOPOLY 359 A particularly important “game” is called the prisoners’ dilemma. This game provides insight into the difficulty of maintaining cooperation. Many times in life, people fail to cooperate with one another even when cooperation would make them all better off. An oligopoly is just one example. The story of the prisoners’ dilemma contains a general lesson that applies to any group trying to maintain co- operation among its members. THE PRISONERS’ DILEMMA The prisoners’ dilemma is a story about two criminals who have been captured by the police. Let’s call them Bonnie and Clyde. The police have enough evidence to convict Bonnie and Clyde of the minor crime of carrying an unregistered gun, so that each would spend a year in jail. The police also suspect that the two criminals have committed a bank robbery together, but they lack hard evidence to convict them of this major crime. The police question Bonnie and Clyde in separate rooms, and they offer each of them the following deal:
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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