The basis of this model is the following scenario. Two prisoners, Chip and Dale, are held for trial. They are held in separate cells with no way of communicating with each other. The prosecutor offers each of them the following deal: .
1) If you will confess that the two of you committed the crime and the other guy denies it, we will let you go free and send him up the river for five years.
2) If you both deny the crime, we have enough circumstantial evidence to put both of you away for two years.
3) If both of you confess to the crime, then you'll both get four year sentences. .
If you were Chip when put in this scenario and you tattle while Dale stays quiet, you get off with no jail time and Dale gets five years. On the other hand, if you stay quiet and Dale talks, you end up with five years of jail time and Dale gets off with no jail time. If it happens that both you and Dale confess, each of you would serve four years of jail time each. And if neither of you confess each of you would serve only two years of jail time each. .
In this scenario, regardless of what Dale does, it would make sense for you to confess your crime in order to avoid the maximum of a five-year jail time. Since Dale would be using the same reasoning skills, he too, would have come to the conclusion of confessing. In which case the total punishment is of eight man- years of jail time (four years each). Ironically, if both of you had denied the crime, then the total punishment would be only four man-years of jail time (two years each.) This case scenario concludes that rationality lead to inferior results. .
Looking that this very same information in a payoff matrix, this concept becomes much clearer.
.
Action Payoff.
Chip Dale Chip Dale.
Cooperate/Deny Cooperate/Deny -2 years ( R ) -2years ( R ).
Cooperate/Deny Defect/Confess -5 years (S) 0 years (T).
Defect/Confess Cooperate/Deny 0 years (T) -5 years (S).
