A prisoners’ dilemma game demonstrates how cooperative action is often not rational even though:

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The question asks about what a prisoners’ dilemma game demonstrates regarding cooperative action and rationality. 
Option 1: 'cooperation would make everyone better off' — This is the core idea of the prisoner's dilemma: while mutual cooperation yields a better outcome for both players than mutual defection, each individual has a dominant strategy to defect, leading to a worse outcome for both. This option correctly identifies the paradox at the heart of the game. 
Option 2: 'cooperation would make everyone worse off' — This is incorrect. In the PD, if both players cooperate, they typically fare better than if both defect, so cooperation does not make everyone worse off; it actually improves outcomes relative to defection. The statement reverses the actual incentive structure. 
Option 3: 'prisoners are not capable of individual choice' — This is a mischaracterization. The PD explicitly models rational individual decision-making and choice; it does not claim prisoners lack agency. While the model highlights conflicts between individual rationality and collective benefit, it does not say individuals cannot choose. 
Option 4: 'all of the options can be demonstrated with a prisoners’ dilemma game' — Since options 2 and 3 are incorrect, this broad assertion is incorrect. The PD does illustrate that cooperation can be beneficial but does not support the claim that cooperation makes everyone worse off nor that prisoners lack choice. 
In summary, option 1 accurately reflects the central insight of the prisoner's dilemma: cooperation would make everyone better off, yet rational self-interest leads to defection and a collectively worse outcome. The other options misstate or overgeneralize the implications of the model.

23566 Economics for Business 2 - Spring 2025 🔴 Quiz 3 - Monopolistic competition and Oligopoly

A prisoners’ dilemma game demonstrates how cooperative action is often not rational even though:

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