Economics Game Theory Questions
In game theory, social dilemmas refer to situations where individual rationality leads to a collectively undesirable outcome. These dilemmas arise when individuals pursue their own self-interests, resulting in a suboptimal outcome for the group as a whole.
One example of a social dilemma is the prisoner's dilemma. In this scenario, two individuals are arrested for a crime and are held in separate cells. They are given the option to either cooperate with each other by remaining silent or betray each other by confessing. If both individuals remain silent, they receive a reduced sentence. However, if one person confesses while the other remains silent, the confessor receives a lighter sentence while the other person receives a harsher one. If both individuals confess, they both receive a moderate sentence.
The dilemma arises because each individual has an incentive to betray the other, as it maximizes their own personal gain. However, if both individuals choose to betray, they both end up worse off compared to if they had both remained silent. This demonstrates the conflict between individual rationality and collective welfare.
Social dilemmas are important in understanding various real-world situations, such as environmental issues, public goods provision, and cooperation in organizations. Game theory provides insights into the strategies individuals may adopt in these dilemmas, such as cooperation, punishment, or the establishment of institutions to enforce cooperation.