The Prisoner's Dilemma
Two suspects, A and B, are taken into custody by the police. The police do not have sufficient evidence for a conviction so they separate the prisoners and visit them individually to offer them the same deal. If one confesses and will testify against the other while the other still stays silent, the one who testifies will go free while the other will serve a very long time in jail. However, if both confess, then both will spend a medium time in jail. Finally, if both stay silent they will serve a very short period of time in jail.[more]
Each prisoner thus has to chose to betray the other or to remain silent. The Pareto optimal case is that both stay silent. However, each player's dominant strategy is to confess.
This Demonstration illustrates a very common game theory concept, that the Pareto optimal strategy is not always the dominant strategy. The initial settings of the sliders , , (.5 , 5 , and 10) are very common values used in the prisoner's dilemma problem to show this. As a matter of fact, any setting where and will similarly lead to the same situation. However, you can set the sliders so that the dominant strategy of both prisoners is not to confess.[less]
An outcome of a game is Pareto optimal if no other outcome makes every player at least as well off and at least one player better off.
A dominant strategy occurs when one strategy is better than any other for one player regardless of the other players' actions.