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A prisoner's dilemma
describes a situation

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where two people acting
in their own self-interest

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will result in a suboptimal
outcome for both.

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Let's say two suspects
have been arrested

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and are now in separate
rooms in a police station

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with no means of
communicating with each other.

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The prosecutor told
them separately,

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if you confess and testify and
the other suspect doesn't, you

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will go free.

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If you don't confess, but
the other suspect does,

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you'll get the maximum sentence
of three years in prison.

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If both of you confess, you'll
both be sentenced to two years.

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But if neither of
you confesses, you'll

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both be sentenced
to just one year.

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If the prisoners act
out of self-interest,

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the outcome is worse than
if they had cooperated.

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This game theory exercise
illustrates the balance

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between cooperation
and competition,

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especially in business.

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Consider two competing companies
like Coca-Cola and PepsiCo.

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What if Coca-Cola
cuts its prices?

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If it does, Pepsi might
have to cut prices

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to keep its market share.

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This could result to lower
profits for both companies.

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But what if Pepsi
keeps its prices high?

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Then Coca-Cola would win
a greater market share

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and earn higher profits
by selling more soda.

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Both companies are
better off cooperating.

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Knowing the structure can be
helpful in many situations,

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from buying a car to
salary negotiations.

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Understanding the values of
cooperation for self-interest

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may help you with your next
big purchase or negotiation.

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