c.Both I and II are true.
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d.Neither I nor II is true. Incorrect. Think about statement I. If leaders know one another and run in the same social circles, how do you think that affects the likelihood of them being able to work together in the long term? Adam Smith said in the Wealth of Nations, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." How does this statement apply here? Now think about statement II. How would being able to sell in secret affect a producer's willingness to break from the cartel's agreement?
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7.The prisoner's dilemma is one of the most important models in all of social science: Most games of trust can be thought of as some kind of prisoner's dilemma. Here's the classic game: Two men rob a bank and are quickly arrested. The police do not have an airtight case; they have just enough evidence to put each man in prison for one year, a slap on the wrist for a serious crime. If the police had more evidence, they could put the men away for longer. To get more evidence, they put the men in separate interrogation rooms and offer each man the same deal: If you testify against your
accomplice, we will drop all the charges against you (and convict the other guy of the full penalty of 10 years of prison time). Of course, if both prisoners take the deal the police will have enough evidence to put both prisoners away and they will each get 6 years. And, as noted above, if neither testifies both will get just one year of prison time. What's the best thing for each man to do? In each cell in the table below, the first number is the number of years Butch will spend in prison, and the second is the number that Sundance will spend in prison given the strategies chosen by Butch and Sundance. If years in prison are minuses, then we can write it like this: If Sundance keeps quiet, what's the best choice for Butch? If Sundance chooses to testify, what's the best choice for Butch?
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