http://www.youtube.com/watch?v=PnZkU0sZVpI

A demonstration by Scott Stevens, Ph. D, of how the Prisoner’s Dilemma works itself out in various different situations other than for benefiting suspects. In the 1960’s, cigarette companies agreed to follow the U.S. government’s ban on TV Ads for tobacco products. One would believe that this would lose the companies revenue, due to the inability to spread word of their product to non-smokers. However, when this situation is viewed as a game, it turns out beneficial for tobacco companies due to the competition between them.

Imagine 2 companies competing for consumers in a game. Each company has 2 strategies: advertise, or don’t advertise. If a company decides to advertise, they win 80% of the market share of consumers, and the one that does not gets 20%. If they both advertise or don’t advertise, they end up with an equal amount (payoff) of the market (50-50).

In this situation, Company A would want to advertise in case that Company B does not advertise (80-20) or that B does (50-50), and Company B would want to do the same as A. Each company would prefer not to run ads, but to protect market shares, they both have to run them to try and keep their portion of consumers. The government, by banning ads, erases 3 of the decisions and insead leaves the companies with the pareto optimal solution of the lower right-hand corner, where both companies do not run ads.

Overall, this situation evolves into a cooperative moment born from self-interest.

Comments

Leave a Reply