1. Police caught two burglars near a murder scene with concealed weapon.
2. Police knew they committed murder but have no proof.
3. So they device a trick. Put them in separate cell.
4. Then offers each a deal: if one confesses and testifies against the other, he can go free and other will get 15 years jail term
5. However police also said if both agree and confess against each other, each will stay in jail for 10 years.
6. If none of them agrees to the deal, they will go to jail for 1 year each for possesing weapon.
7. Assuming both burglars selfish and rational, both confess and testify against each other resulting worse scenario for both.
The equilibrium of this game is that both burglars confess and both go to jail for 10 years. The theory has been applied in various fields like marketing, sport, politics etc. Recent example of this theory is seen in Nepalese politics. Maoists and UML were in blister after the election of the President and Vice-President. After devising the best strategy for themselves, but each unaware of other’s strategy, both played a game hoping to gain the maximum out put (Pareto Optimal) in their favor. The number of required seats is the key to the success. The best strategy is get both portfolio and give nothing for other. Worse scenario is losing both post. As players were selfish and rational, both end up in worse nightmare.