The PRISONERS'DILEMMA A classic example in game theory, call the prisoners' dilemma, illustrates the problem faced by oligopolistic firm. It goes as follows: two prisoners have been accused of collaborating in a crime. They are in separate jail cells and cannot communicate with each other. Each has been asked to confess. If both prisoners confess, each will receive a prison term of five year. If neither confesses, the prosecution's case will be difficult to make, so the prisoners can expect to plea bargain and receive terms of two years. On the other hand, if one prisoner confesses and the other does not,the one who confesses will receive a term of only one years, while the other will go to prison for 10 years. If you were one of these prisoners, what would you do confess or not confess?
The payoff matrix in Table 12.4 summarizes the possible outcomes. (Note that the"payoffs" are negative; the entry in the lower right-hand corner means a