Game Theory Explained

This is quoted from a post on a WoW-related forum I peruse. Thanks go out to Akanax, the author!

Suppose there are 2 bank robbers, Bob and Pete. So Bob and Pete rob the bank, all seems well and good, not so! Later that day they are taken to police station for questioning. They are separrated and interviewed. Bob and Pete are each equally propositioned; if Bob confesses, and Pete doesn't, Bob gets off free, while Pete gets 8 years in the lock-up. If they both keep their mouths shut, they get a year each. However, if they both confess, they are busted for 4 years a piece. Pete is offered with the same choices.

It is only rational that each will pick the choice to minimise thier own term, confess. But this is cleary not the best outcome. The best outcome is known as 'Nash equilibrium' (Nash was the guy in the film 'A Beautiful Mind'). The only way to reach this point, is with collusion.

I haven't studied game theory so I can't speak to the accuracy of the quoted piece. However I'm pretty sure it's a good explanation of "the prisoner's dilemma." I'll have to look more into this some other time. Cheers!