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The Prisoner's Dilemma is the one 2×2 game every educated person should be able to draw from memory. It demonstrates, starkly, how rational self-interest by each player can produce an outcome that is worse for everyone than the one they could have reached by coordinating. Almost every topic in this course — equilibrium, cooperation, repeated games, mechanism design — is in some sense an answer to 'so what do we do about the Prisoner's Dilemma?'
Both players choose Cooperate or Defect simultaneously. Payoffs are (row, column):
Use these three in order. Each builds on the one before.
In one paragraph, explain the Prisoner's Dilemma to someone who's never seen a payoff matrix. Why is it called a 'dilemma'?
Walk me through exactly why each player defects, step by step, using the numbers in the 3/5/0/1 payoff matrix. What does 'dominant strategy' mean here, and how do I check a strategy is dominant?
Suppose two firms can collude on price (both cooperate) or compete (both defect). How would you alter the payoffs so the dilemma *disappears*? What real-world mechanisms (repetition, reputation, contracts, regulators) correspond to each alteration?