Economic Analysis of Business Practice
A few months ago I saw a link to a online "game" explaining the above. Quite interesting.http://ncase.me/trust/
The prisoner’s dilemma is the oldest and most studied game in economics and reflects many business situations. (Froeb, 191). It is a game in which conflict and cooperation are in tension, self-interest leads the players to outcomes that no one likes. It is in each player’s individual interest to not cooperate regardless of what the other player does. This makes both players not cooperate. It is easier to get out of the prisoner’s dilemma when it is repeated. When repeated, a player can condition their future behavior on their opponent’s past behavior. This can lead to the Tit-for-tat strategy. This strategy has the player cooperating the first period and then doing what your opponent did the last period. This strategy is successful because it never strikes first and responds immediately to defection with limited punishment to only one period. The focus would be to maximize your own profit without limiting the profit of the competitor. As stated in the blog the strategy requires:• Be nice: Start by cooperating. Don’t strike first• Be easily provoked: Respond immediately to rivals• Be forgiving: Don’t try to punish other players too much• Don’t be envious: Focus on your own piece of the profit, not your competitors
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