What is ‘Prisoner’s Dilemma’?

In Game theory, the Prisoner's Dilemma is a classical
example for the analysis of how people behave when they are in a situation that does not
have a zero sum. This implies that one person’s loss due to an action by the other is
not exactly equal to the other person's gain; instead it is a lot
higher.

In the Prisoner’s Dilemma the situation under study
is that of two people who have been caught with stolen goods. The police do not have
sufficient evidence to convict either of them for theft. The maximum they can do is to
prove that they have stolen goods with them.

Now, the two
people arrested, A and B are isolated and each is given the following options: a 1 year
term if neither testifies against the other ;a 2 year term if both of them testify
against each other and a 10 year term for the one who doesn’t, if only one of them
testifies against the other.

It has been found here that
neither A nor B cooperates with the other though mutual cooperation yields the shortest
term for them. This follows from the fact that neither is aware of what the other is
going to do. The best option in this case is for neither to cooperate with the other to
assure a maximum term of just 2 years, instead of one cooperating and risking a 10 year
term based on what the other does.

The Prisoner's dilemma
is a way to explain the behavior of two entities and finds applications in the fields of
business, law, biology, psychology among many others.