Prisoner's Dilemma Quiz: Test Your Microeconomics Knowledge

📚 Quick Study Guide

• 🤝 The Prisoner's Dilemma is a standard example of a game analyzed in game theory that shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interests to do so.
• 👮 Two suspects are arrested for a crime. The police lack sufficient evidence to convict them, so they separate the prisoners and offer each a deal: betray the other.
• 🤔 The Dilemma: Each prisoner must choose to either cooperate with the other prisoner (remain silent) or defect (betray the other).
• 📊 Payoff Matrix:
  • If both cooperate, they each receive a moderate sentence.
  • If one defects and the other cooperates, the defector goes free, and the cooperator receives a harsh sentence.
  • If both defect, they both receive a somewhat harsh sentence.
• 🔑 Nash Equilibrium: The dominant strategy for each player is to defect, leading to a suboptimal outcome where both are worse off than if they had cooperated.
• 💡 Real-World Applications: The Prisoner's Dilemma is used to model various real-world situations, including arms races, environmental issues, and business competition.

Practice Quiz

1. Which of the following best describes the Prisoner's Dilemma?
   1. A game where cooperation always leads to the best outcome for both players.
   2. A game where the dominant strategy leads to a suboptimal outcome for both players.
   3. A game with only one player.
   4. A game where communication is required for optimal outcomes.
2. In the Prisoner's Dilemma, what is the dominant strategy for each player?
   1. Cooperation
   2. Defection
   3. Random choice
   4. Following the other player's lead
3. What is the Nash Equilibrium in the Prisoner's Dilemma?
   1. Both players cooperate.
   2. Both players defect.
   3. One player cooperates, and the other defects.
   4. The outcome depends on chance.
4. Which of the following is NOT a characteristic of the Prisoner's Dilemma?
   1. Rational self-interest leads to a less desirable outcome.
   2. Lack of trust between players.
   3. Guaranteed optimal outcome for both players.
   4. Incentive to betray the other player.
5. What real-world scenario can be modeled using the Prisoner's Dilemma?
   1. Charitable giving
   2. Arms races between countries
   3. Teamwork in sports
   4. Monopoly pricing
6. If one prisoner cooperates while the other defects, what is the outcome?
   1. Both receive moderate sentences.
   2. The cooperator receives a harsh sentence, and the defector goes free.
   3. The cooperator goes free, and the defector receives a harsh sentence.
   4. Both go free.
7. Why do players in the Prisoner's Dilemma often choose to defect?
   1. To ensure the best possible outcome for both players.
   2. To minimize their own potential losses, regardless of the other player's choice.
   3. Because they trust the other player to cooperate.
   4. Because they are forced to by an external authority.