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Economic Efficiency. Prisoners Dilemma in the Market
Introduction
Efficiency in communication is not a big deal while taking into account the main definition of economics as concerning relationships between an individual and a group. In this respect, one should bear in mind the fact that prisoners dilemma is one of the milestones in this case. The thing is that cooperation between an individual and his/her interests and a group is at a focus for the study of prisoners dilemma. Thus, the possibility of cooperation, in the long run, is meant as a focal for researchers in social affairs. As Fong and Sannikov (2007) note: cooperation is difficult to achieve when each player can only observe other players actions with noise (1). Such grounding of the problem gives way to suppose that prisoners dilemma is about being closer to economic efficiency. Such an idea appears out of the whole kinds of observations of the so-called game maintained among prisoners.
The question is that different cases in which such dilemma emerges state on the fact that market economy should be efficient in its all-pervading nature. To say more, it is a sticking point for all interested in the issue. Cooperation is really difficult between such groups of individuals. However, it is a phenomenon of prisoners dilemma that serves as a mechanism to explain various threats in such situations. Mankiw (2008) admits that cooperation between two captured prisoners is difficult to provide even if it is mutually beneficial (370). So it is vital for the police and other bodies of justice to make a rather deeper investigation of two criminals so that to explain why in most cases they fail to make criminals confess.
While taking a look at different stories where two were captured and suspected of acting together criminals do not confess make observers guess why it is so. In the case of Tanya and Cinque the charge is serious (Prisoners Dilemma, 2007, p. 2). Their situation is far from being solved softly. However, they are asked to confess, as the best way for both and the result goes into nothing for one reason. It concerns an assumption that following commands or suggestions of the rational part in this conflict may not in every case go well for prisoners. In other words, one may suppose the following: A group whose members pursue rational self-interest may all end up worse off than a group whose members act contrary to rational self-interest (Prisoners Dilemma, 2007, p. 2). On this basis appears a contradiction that goes apart from the sound-minded predictions about the case.
Prisoners dilemma in economic efficiency
Here comes an opinion to better use an approach close to the game theory. Dominance and subordinate are the factors that identify the positions of players involved in such speculation. Confessing or remaining silent is the two ways out for Tanya and Cinqo. However, they are aware of how promises of the opposite party in this situation may fail the short of their expectations. Economic efficiency can be reached while using the payoff matrix to make the best strategy in resolving the conflict positively and with less expenditure from the state budget.
In the case of Row and Column, the situation is that of lacking enough facts to make them guilty (Prisoners Dilemma, 2007, p. 4). The thing is that such a game is like throwing dice. The trap for both is that they are in separate cells. It does not attempt for each to communicate before during and after the examination. Now let us hypothesize that one of them is told to confess due to the reward of fewer years spent in prison. On the other hand, the accomplice of Row, Column, is also proposed to confess based on beneficial outcomes. However, the dilemma is outlined in not enough assurance of one prisoner that his accomplice would not stay silent. The whole observation touches upon three possible scenarios.
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One confesses and his accomplice stays silent;
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Both confess;
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Both stay silent.
Respectively the consequences, in this case, can be depicted in the following sequence:
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First is set free, the second is imprisoned for the highest term;
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Both are given half of the term for imprisonment;
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Both are charged for a term of under a year.
Thus, the economic efficiency of captured prisoners is to guess either whether to confess or stay silent. In this puzzle the most optimal variant is to confess. It is so because the best scenario leads to release and the worst is to get a term of some years in prison. On the other hand, if the accomplices are working together based on primordial anticipation to stay silent, then both would follow common interests. However, the human factor is an obstacle in such situations. Though, there may be no guarantee for one accomplice that another one would not fail to stay silent. If looking at this prisoners dilemma from a more general perspective, silence may be punished closely even if one is better off to believe in his/her accomplices moderation.
The same situation as in the case with prisoners can be described in terms of market economies. Prisoners dilemma is a kind of strategy. The only question is how one would act. In oligopolies, suchlike a game is considered with features of making dominant strategy run their monopoly (Weber & Murnighan, 2008). In this case, terms like to confess and stay silent are transformed into cooperating or defending. Monopolists are trying to maintain instruments for making their deals agreed with partners on minor profits for the partners and major for a monopolist. In this respect, it is vital to admit strategic use of prisoners dilemmas. Mankiw (2008) remarks: Just as self-interest drives the prisoners in the prisoners dilemma to confess, self-interest makes it difficult for the oligopoly to maintain the cooperative outcome with low production, high prices, and monopoly profits (373). It is true when taking a glance at the real state of relationships in the markets.
Conclusion
Thus, one should keep in mind that economic efficiency may be reached due to the factors influencing a person in his decisions and interests. It is a drive that can make individuals involved in cheating or hiding information that makes the social, political, and economic processes delayed. It is a trouble for human beings living in a definite community and following particular interests. The only thing is whether such interest serves the common interests or it serves the interests of self. Hence, prisoners dilemma is used in cases when one needs to decide how to cooperate and whom it should touch upon. Different principles according to this are already working for the interests of different companies. It is time to bear in mind the significance of prisoners dilemma in the market along with the outcomes of such speculation.
Reference
Fong, K. & Sannikov, Y. (2007). Efficiency in a Repeated Prisoners Dilemma with Imperfect Private Monitoring. Berkeley: Department of Economics, UCB, UC. Web.
Mankiw, N. G. (2008). Principles of Economics (5th ed.). Stamford, CT: Cengage Learning.
Prisoners Dilemma. (2007). Economic Efficiency.
Weber, J. M.; Murnighan, J. K. (2008). Suckers or saviors? Consistent contributors in social dilemmas. Journal of Personality and Social Psychology. 95(6):1340-1353.
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