The prisoner's dilemma

The prisoner's dilemma is the classic game showing why two rational players might fail to cooperate even when cooperation would leave them both better off. It underpins much of game theory.

• Each player's dominant strategy is to defect — so both do, and both lose.
• It explains arms races, price wars, and why cartels break down.
• Repeating the game can sustain cooperation through reputation and retaliation.

Two rival petrol stations on the same corner both “know” they'd earn more if they kept prices high. But each is tempted to undercut the other by a cent to steal customers — so both cut, and both end up with thin margins. That's the prisoner's dilemma playing out on the street: individually rational moves lead to a collectively worse outcome.

Whenever you see cooperation that “should” happen but doesn't — climate agreements, doping in sport, ad spending wars — look for a prisoner's dilemma underneath. The fix is almost always to change the payoffs or repeat the game.