PRISONERS DILEMMA

The purpose of this assignment is to assist you in understanding how a Duopoly's decision making works.

One of the classic illustrations of game theory is the prisoner's dilemma game in which two people Betty and AL, have committed a diamond heist and are being detained by the police as prime suspects. Unbeknownst to the two, the evidence against them is weak, so the best hope the police have for getting a conviction is if one or both of them confess to the crime. The police place Betty and Al in separate holding cells and offer each the same deal? Confess to the crime and get 1 year, don't confess and get 20 years. Each detainee therefore faces a dilemma. If Betty remains silent and Al confesses, Betty will end up with 20 years in prison. If Betty confesses and Al says nothing, Al will receive the 20 years. What happens? Fearful that the other person will confess, both confess, even though they each would be better off saying nothing.

With this information: construct a payoff matrix using confess and don't confess as your two options.

1. Explain the 4 quadrants as to the outcomes of each.

2. How would collusion have been helpful to the outcome of both Betty and Al

3. How does this relate to the behavior of a Duopoly?