Final answer:
In the prisoner's dilemma, each player's pursuit of their dominant strategy, which is to act in self-interest, leads to a Nash equilibrium where the overall outcome is suboptimal for the group. This often applies in oligopoly markets where firms could benefit from cooperation but tend to compete instead.
Step-by-step explanation:
In the prisoner's dilemma, every player following their dominant strategy leads to an outcome that is not optimal for the group as a whole. This situation is known as Nash equilibrium, named after the mathematician John Nash. The dilemma showcases how rational individuals, when trying to maximize their own benefit without regard for the overall group's best interest, may end up worse off than if they had cooperated.
The prisoner's dilemma can be applied broadly, not just in criminal scenarios but also in business, particularly in situations resembling oligopoly markets where firms must decide between cooperation and competition. Despite potential gains from cooperation, firms often end up competing, resulting in lower profits for each. This economic model demonstrates the tension between self-interest and mutual benefit.